ISAs
ISAs (Individual Savings Account) remain one of the most tax efficient solutions for your savings. On 1 July 2014, several restrictions were removed to improve flexibility and transfer options.
From April 2024 there is no limit to the number of ISA’s you can open, you can now invest in as many ISA’s as you see fit, your are also now able to make partial transfers from one ISA to another.]
You'll also be able to transfer new and previous years' ISA investments from Stocks and Shares into Cash, and vice versa, as opposed to previous rules which didn’t allow stocks and shares ISAs to be transferred into Cash ISAs.
From Autumn 2015 individuals may be able to withdraw money from ISAs and replace it in the same tax year without the replacement counting towards their annual ISA subscription limit for that year. This only applies if the ISA provider has adopted the Flexible ISA rules.
What is an ISA?
Available since April 1999, ISAs offer an attractive tax-efficient investment to anyone aged 18 or over (16 or over for cash ISAs).
Tax must be paid on the income and profits made from investments in the stock market, either directly or through unit trusts and OEICs.
ISAs, however, serve as a kind of 'wrapper' to protect savings from tax. This allows individuals to invest in a range of tax efficient savings and investments, and pay no personal tax at all on the income and/or profits received.
The Main Benefits of an ISA
An ISA allows you to save or invest money in a tax-efficient way. An ISA is a tax-free savings or investment account that allows you to put your ISA allowance to work and maximize the potential returns you make on your money, by shielding it from income tax, tax on dividends and capital gains tax.
Income and gains from ISAs do not need to be included in tax returns.
Money can be withdrawn from an ISA at any time without losing the tax breaks.
Types of ISAs
Cash ISA
A cash-only bank or building society savings based on a fixed or variable rate with an individual allowance of £20,000.
Stocks and Shares ISA
A Stocks and Shares ISA, or an Investment ISA, allows you to hold a wide range of assets, including cash, funds, shares, gilts, bonds, exchange traded funds (ETFs), exchange traded commodities (ETCs) and investment trusts. Unlike cash ISAs, these can fall in value as well as rise. Like a Cash ISA it has an individual allowance of £20,000.
Junior ISA
Junior ISAs are available as both stocks and shares Junior ISAs and cash Junior ISAs, the current contribution limit for these is £9,000 per annum.
Your child can have a Junior ISA if they:
- Are under 18
- Live in the UK
- Weren’t entitled to a Child Trust Fund (CTF) account (or if they transfer their CTF funds to a JISA and close their CTF first)
Lifetime ISA
A Lifetime ISA provides a 25% bonus payment on top of individual contributions. However, limits apply and the Lifetime ISA has to be opened between the ages of 18 and 39 and, in order to benefit from the 25% bonus, money must be held in the ISA until the individual is aged 60. An exception is made if the money is being withdrawn to purchase a first home, in which case the bonus is available regardless. The Lifetime ISA annual allowance is £4,000 and it can be held alongside other ISAs, but it forms part of the £20,000 overall individual allowance.
You will incur a lifetime ISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a lifetime ISA.