What is an Individual Savings Account (ISA)?

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Introduced by the government on 06 April 1999, Individual Savings Accounts (ISAs) are designed to encourage people to save and invest by offering tax incentives.

If you save in an ISA, you are entitled to keep all that you receive from that investment and not pay any tax on the proceeds. This is because there is no Income or capital gains tax payable, which can make a significant difference over the long term – whether you’re investing for income or growth.

Each tax year, the government sets how much you can save in an ISA. The tax year starts on 06 April each year, and runs to the following 05 April.

There are four types of ISAs available – Cash ISA, Stocks & Shares ISA, Lifetime ISA and Innovative Finance ISA.

If you have used your full ISA allowance each year you might find you have accumulated a significant sum of money.

You may also have ISAs or other investments that may have lost their appeal or are not managed under a coherent investment strategy.

Holding a diverse range of investments across your ISA portfolio might also involve unnecessary time and cost which we can help you avoid.

Can I have more than one Individual Savings Account (ISA)?

You have a total tax-efficient allowance of £20,000 for this 2021/22 tax year. This means that the sum of money you invest across all your ISAs this tax year (Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, or any combination of the three) cannot exceed £20,000.

You can only invest into one Stocks & Shares ISA or Innovative Finance ISA in each tax year, but you can open a new ISA with a different provider each year if you want to. You do not have to use the same provider for your Cash ISA if you have one.

You have the flexibility to split your tax-free allowance across as many ISAs and ISA types as you wish. For example, you may invest £10,000 in a Stocks & Shares ISA and the remaining £10,000 in a Cash ISA. This is a useful option for those who want to use their investment for different purposes and over varying periods of time.

When will I be able to access the money I save in an Individual Savings Account (ISA)?

Some ISAs do tie your money up for a significant period of time. However, others are pretty flexible. If you are after flexibility, variable rate Cash ISAs do not tend to have a minimum commitment.

This means you can keep your money in one of these ISAs for as long – or as short – a time as you like.

This type of ISA also allows you to take some of the money out of the ISA and put it back in without affecting its tax-efficient status.

What is a Help to Buy Individual Savings Account (ISA)?

You can no longer open a new Help to Buy ISA. But if you already have one, you can continue to save into the account. The government will top up any contributions you make by 25%, up to the contribution limit of £12,000. So, for every £200 you save, the government will contribute £50.

You can earn a maximum of £3,000 from the government if you save the full £12,000.The minimum amount you need to save to qualify for a government bonus is £1,600 (which gives you a £400 bonus).

You can contribute up to £200 per month. Both your initial deposit and monthly payments qualify for the 25% boost from the government.

Could I take advantage of a Lifetime Individual Savings Account (ISA)?

You can use a Lifetime ISA to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA.

You can put in up to £4,000 each year, until you’re 50. You must make your first payment into your ISA before you’re 40.

The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the tax year 2021/22.

You can hold cash or stocks and shares in your Lifetime ISA, or have a combination of both.

When you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% bonus. Your account will stay open and your savings will still earn interest or investment returns.

You can take your savings out of a Lifetime ISA when you’re 60 or over.

To open and continue to pay into a Lifetime ISA you must be a resident in the UK, unless you’re a crown servant (for example, in the diplomatic service), their spouse or registered civil partner.

What is an Innovative Finance Individual Savings Account (ISA)?

An Innovative Finance ISA allows individuals to use some or all of their annual ISA allowance to lend funds through the Peer-to-Peer lending market.

They were introduced in 2016 to encourage retail investors to invest in lending over Peer-to-Peer lending and bond platforms. Investing in debt-based crowdfunding was then introduced from 1 November 2016.

Innovative Finance ISAs now sit alongside Cash, Stocks & Shares and Lifetime ISAs to give investors more diversity and choice over what to do with their ISA investments.

Peer-to-Peer lending allows individuals and companies to borrow money directly from lenders. Your capital and interest may be at risk in an Innovative Finance ISA and your investment is not covered under the Financial Services Compensation Scheme.

All UK taxpayers over 18 have an annual ISA allowance. You can invest the whole allowance in an Innovative Finance ISA or split it between an Innovative Finance ISA and other types of ISA. You can only invest in one Innovative Finance ISA each year but can invest in different ones in subsequent years.

As with all ISAs, your annual allowance cannot be rolled over to the next tax year.

What is a Junior Individual Savings Account (JISA)?

Junior ISAs, or JISAs can be set up for any child from birth to the age of 18. They can be Cash ISAs or Stocks & Shares ISAs and are a tax-efficient way to save or invest for a child as they are free from any income tax, tax on dividends and capital gains tax on the proceeds.

Those investing on behalf of a child, generally parents and grandparents, must be aged 16 or over and be a UK resident. The annual allowance for 2021/22 is £9,000.

Children aged 16 to 18 can open JISAs themselves, in addition to opening an adult Cash ISA, with an annual allowance of £20,000 (tax year 2021/22). This significantly increases the amount of capital that can be invested within ISA wrappers between the ages of 16 to 18.

Is tax payable on Individual Savings Account dividend income?

No tax is payable on dividend income. You do not pay tax on any dividends paid inside your ISA. Outside of an ISA, you currently receive a £2,000 dividend income allowance (tax year 2021/22).

Is Capital Gains Tax (CGT) payable on my Individual Savings Account investment gains?

You do not have to pay any capital gains tax (CGT) on profits. You make a profit when you sell an investment for more than you purchased it for.

If you invest outside an ISA, excluding residential property, any profits made above the annual CGT allowance for individuals (£12,300 in 2020/21 tax year) would be subject to CGT.

For basic rate taxpayers, CGT is 10% or more. For higher and additional rate taxpayers, CGT is 20%.

I already have Individual Savings Accounts (ISAs) with several different providers. Can I consolidate them?

Yes, you can, and you will not lose the tax-efficient wrapper status. Consolidating your ISAs may also substantially reduce your paperwork.

Can I transfer my existing Individual Savings Account (ISA)?

You can transfer an existing ISA from one provider to another at any time as long as the product terms and conditions permit this.

If you want to transfer money you have invested in an ISA during the current tax year, you must transfer the whole balance. For money you invested in previous years, you can choose to transfer all or part of your savings.

Should you wish to switch your current or previous year’s ISA to a different provider’s ISA while simultaneously keeping future tax benefits intact, you have to arrange for a transfer rather than selling and reinvesting.

All ISA providers have to allow transfers out, but they do not have to allow transfers in.

You can transfer money from a Cash ISA to a Stocks and shares ISA.

What happens to my ISA if I die prematurely?

Following ISA rules that were introduced in April 2015, a surviving partner of a spouse or registered civil partner who died on or after 3 December 2014, will receive an additional ISA allowance equal to the value of the deceased’s ISA savings at the time of death.