What is an ISA?

An Individual Savings Account (ISA) is a tax efficient way of saving or investing as all income and capital gains arising within an ISA are exempt from any personal liability to UK income tax and capital gains tax.

There are two main types of ISA:

  • Cash ISAs which are classed as tax-free (i.e. you are not taxed on the interest earned on UK income)
  • Stocks and shares – ISAs, which are classed as tax-efficient

A payment into an ISA in any tax year is called a subscription. You can only subscribe to one of each type of ISA per tax year.

Who can have an ISA?

To subscribe to an ISA you must be

  • Resident in the UK
  • A Crown servant (someone employed by the government, but serving overseas, such as a diplomat) their spouse or civil partner
  • A member of the armed forces who is based overseas, including their spouse or civil partner
  • Aged 16 for a cash ISA, or
  • Aged 18 for a stocks and shares ISA

How much can I invest in an ISA?

Because of their tax advantages ISAs are subject to annual subscription limits. From 6 April 2017 the overall annual ISA subscription limit is £20,000 which can be held in cash, stocks and shares or any combination of the two.

For example, you could chose to pay in:

  • £20,000 to a cash ISA and nothing to a stocks and shares ISA
  • £20,000 to a stocks and shares ISA and nothing to a cash ISA
  • £5,000 to a cash ISA and £15,000 to a stocks and shares ISA
  • £15,000 to a cash ISA and £5,000 to a stocks and shares ISA
  • A combination of amounts between a cash ISA and stocks and shares ISA, up to the annual overall limit of £20,000

What is a JISA?

A Junior Individual Savings Account (JISA) are long-term, tax free savings accounts for children.

There are two types of JISA – Cash JISAs and Stocks and shares JISA.

From 6 April 2017 the annual ISA subscription limit for a JISA is £4,128.

How do I apply for an ISA?

After you have chosen your ISA provider, you will need to complete an application form. Many banks have facilities that mean you can do this in branch, over the telephone or online. The form will require usual details such as your name, address, date of birth, National Insurance number and signature. You will also have to provide proof of identity and an address if you are not a customer of the bank already.

How easy is it to withdraw cash and are there any penalties for doing so?

  • Cash ISAs allow you to withdraw your money, some without any loss of interest, so you can get to it if you really need to.
  • Stocks & shares ISAs will invest in assets that can go up and down in value, so they are not suitable for investing in for short periods. If you withdraw some or all of your ISA investment, you will not be able to replace the amounts withdrawn within the same tax year.

ISA products terms vary, from one ISA manager to another, so you will need to contact the ISA provider for details on potential loss of interest when withdrawing funds.

Can my spouse and I each have an ISA?

Yes. An ISA must be in your name alone. You cannot have a joint ISA. So if you’re married or in a relationship, you can both hold your own ISA, each with the full allowance.

Can I transfer my ISA ?

You can transfer your ISA(s) from one manager to another whenever you want. You may transfer:

  • Any current year ISA subscriptions (and any related income) and/or
  • All or part of your previous years ISA subscriptions (and any related income).

If the ISA contains current year subscriptions you must transfer all of the current year’s subscriptions as partial transfers of current year subscriptions are not permitted by HMRC.

Subscriptions to a stocks and shares ISA can be transferred to another stocks and shares ISA or to a cash ISA. Subscriptions to a cash ISA can be transferred to another cash ISA, or to a stocks and shares ISA.

Industry guidelines on cash ISA transfers are available here.

Industry guidelines on stocks and shares ISA to cash ISA transfers are available here.

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