TESSA Only Indivisual Savings Accounts

TOISAs

What are they?

A TESSA Only Individual Savings Account (TOISA) originally enabled an investor to re-invest (or roll over) their maturing TESSA in order to benefit from continued tax-free growth. This facility was in addition to the maximum annual ISA allowance.

For those unaware of what a TESSA is, a little background will help:

TESSAs are investments provided by Banks and Building Societies. An investor opens a special bank or building society account that provides tax-free interest provided the account is retained for a fixed period of five years.

As long as the investor leaves their savings in the account over that period of time, any interest, dividends or bonus earned within the account will be totally free of tax.

TESSAs have now been replaced by cash Individual Savings Accounts (ISAs) and it has not been possible to open a new TESSA since 5 April 1999.

There are two main types of TESSA Only ISAs:

Equity-Linked TESSA Only ISA

The majority of TESSA owners usually re-invested the proceeds of their maturing TESSA with their existing provider into a standard cash deposit based TESSA only ISA (TOISA) account. However, there was an alternative to this in the form of a fixed-term equity-linked TOISAs.

Typically, this type of account offers a 100% capital guarantee, plus an additional return that is linked to the performance of the stockmarket (e.g., FTSE 100) over a five-year term. They were available to anyone with a maturing TESSA or anyone who already has a TESSA Only ISA. They are usually set up for a term of 5 years. Early encashment would usually incurr a penalty.

Cash Based TESSA Only ISA

A cash or deposit based TESSA Only ISA is basically a bank or building society account where the interest is not subject to tax. Just like a normal bank and building society account, the rates and terms and conditions applying will vary from provider to provider.

When these investments mature, investors can select to reinvest with the same provider or transfer the TOISA to another TOISA provoder as long as certain procedures are met in order to retain your tax free status.

NB...The favourable tax treatment currently available for TOISAs might not continue in the future.

6 April 2008

As from 6 April 2008, TESSA only Isas will become known as Cash ISAs.