What is an ISA?
ISA rules, limits and tax benefits explained
ISAs (Individual Savings Accounts) are a simple account for making tax-free savings and investments. The Government introduced them in 1999 to encourage people to save for the future.
Tax benefits of ISAs
In an ISA any interest you earn from cash savings or investment gains you make are tax-free. Any investments you hold in a Stocks & Shares ISA are also free from Capital Gains Tax. You don’t have to declare ISAs on your annual tax return.
In an ISA any cash interest or investment gains are tax-free.
How much can I invest in an ISA?
Because ISAs come with such generous tax breaks there is a limit to how much you can pay into them each year. This is called your ISA allowance. This tax year your ISA allowance is £15,240 and you can also pay £4,080 into a Junior ISA for children.More information on ISA allowances
Can I transfer ISAs from one provider to another?
Yes, transferring ISAs between providers is easy. People often transfer their ISAs because they are unhappy with their level of service, want to consolidate their investments or are switching from Cash ISAs to Stocks & Shares ISAs. Your ISA allowance isn’t affected when you transfer old ISAs to a new provider.
The different types of ISA
Stocks & Shares ISAs
- Stocks & Shares ISAs let you invest your ISA allowance in the stock markets. They can potentially give you better returns than Cash ISAs over the long term, but as with any investments there is the risk of losing money.
- Cash ISAs give you a variable or fixed rate of interest, usually over a set period of time. You are guaranteed this income but interest rates are currently at all-time lows.
- Junior ISAs come with the same tax benefits as adult ISAs. You can open one for your child and invest the £4,080 Junior ISA allowance into it each year. You can also transfer Child Trust Funds into a Junior ISA.
- The Lifetime ISA will be introduced in April 2017. It gives you a £4,000 annual allowance with the Government adding a 25% bonus to anything you pay in up to age 50. You can use the money to either buy your first home or to fund your retirement once you reach age 60. You can make withdrawals for other reasons, but you will lose your bonus and will pay a 5% fee on anything you take out.