ISAs & Collectives
Packaged investments provided by an investment company
A Collective is a generic name for a packaged investment such as a Unit Trust, OEIC (Open Ended Investment Company) or GIA (General Investment Account).
It is a fund which invests in several company shares as well as other financial instruments. They are designed to be held for the medium to long-term and are subject to Capital Gains and Income tax. However each year, the first £6,000 of gain is free of capital Gains tax and the first £1,000 of dividends is free of Income Tax, so for smaller portfolios which suffer no tax, they have the same net returns as ISAs. For larger portfolios, the annual allowances can be used to minimise the tax due.
A stocks and shares ISA is essentially a Collective with a tax free wrapper around it, so you have to pay neither Capital Gains nor Income Tax. You can invest £20,000 per annum into an ISA. You can also invest a further £9,000 into a Junior ISA for a child.
Investing in either a Collective or ISA gives you the ability to build a decent capital sum which is either tax-free or nearly tax-free and there is no restriction on how much you can take out.
60 Second Case Study: Why this matters...
Mrs A had had received little or no interest on her bank savings for years, however the cost of living kept going up an up. So she decided she wanted her money to work harder and decided to invest instead. By investing in the great companies of the world, she now has a decent-sized, tax-free lump sum available, which she can access whenever she wants.
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