ISAs.

Individual Savings Account (ISA)

ISAs represent a tax-efficient wrapper in which to place cash savings and investments in equities, bonds and other collectives.

An ISA is available to all UK resident individuals and to Crown servants (for example, those in the UK’s armed forces, diplomatic service or overseas civil service) and their spouses or civil partners who are not resident in the UK.

To open an ISA you must be over the age of 16 for Cash ISAs & over the age of 18 for Stocks & Shares ISAs and you cannot hold an ISA with or on behalf of someone else.

Designed to encourage new saving they are attractive to investors seeking a tax-efficient investment vehicle with the potential for higher returns. There is usually a low level of minimum amount you need to pay in and no minimum period of investment.

An ISA enables you to accumulate savings in a tax efficient manner as all gains are free from tax, making them particularly attractive to higher rate taxpayers.

An ISA can contain cash deposits, investments in equities, bonds and collectives.

In addition to the main two types of ISAs (Cash ISAs and Stocks & Shares ISAs), there are also Lifetime ISAs, Innovative Finance ISAs as well as Junior ISAs for children. They each have their own rules which you should be careful not to breach. Although you can usually pay into more than one type of ISA each tax year, you can only pay into one of each type of ISA. For example, for the 2022/23 tax year, you could choose to pay into the following:

• £20,000 into a Cash ISA and nothing into a Stocks & Shares ISA, or
• £20,000 into a Stocks & Shares ISA and nothing into a Cash ISA, or
• A combination of amounts in a Cash ISA and a Stocks & Shares ISA, up to the overall annual ISA limit of £20,000.

*These limits are subject to change.

Although you can only open one Cash ISA and one Stocks & Shares ISA to put new money into each tax year, you can also open other ISAs to transfer old ISAs into.

Withdrawals from an ISA can be made at any time with all gains free from tax but it is only possible to hold one of each type of ISA per tax year, so if an ISA is closed within the same tax year that it was opened, another ISA of the same type cannot be started until the next tax year.

ISAs can be transferred from one provider to another, as long as the new provider accepts transfers. An example of this can be transferring a Cash ISA after it has been held for a year as initial interest rates can drop dramatically when short-term bonuses and fixed terms come to an end. The transfer is initiated through the new, receiving ISA provider who will require you to supply details of the original ISA and will manage the whole transfer process. Transfers should not be done manually by withdrawing the investment, closing the account, and re-investing it into the new ISA yourself as this removes the tax-free interest status of your investment.

The current year's allowance is unaffected by anything transferred from previous years so you can transfer previous year ISAs into a new ISA and open a second ISA for this year’s ISA allowance if you wish, as long as you don't contribute new money to both.