Anyone, who is an income tax payer and has some money to save or invest should know about Individual Savings Accounts (ISAs). ISAs are wrappers within which a wide range of savings and investment products can be held, free of UK income and capital gains tax by anyone aged 18 or over (16 or over for cash ISAs).

ISAs serve as a ‘wrapper’ to fully protect savings from tax, allowing individuals to invest monies up to maximum limits (by way of regular or single amounts) each tax year in a range of savings and investments and pay no personal tax at all on the income and/or profits received. The main ISA benefits are:

  • No personal tax (income or capital gains) on any investments held within an ISA;
  • Income and gains from ISAs do not need to be included in tax returns; and
  • Money can be withdrawn from an ISA at any time without losing the tax breaks.

There are five types of ISA:

  • Stocks & Shares – in the form of either individual shares or bonds, or pooled investments such as open-ended investment funds, investment trusts or life assurance investments;
  • Cash – usually containing a bank or building society savings account;
  • Innovative Finance (IF-ISA) – in the form of loans made through peer-to-peer (P2P) platforms;
  • Lifetime (LISA) – for those aged between 18 and 40 designed to help them save up for their first home or retirement; and
  • Help to Buy – aimed at helping first-time buyers save for their mortgage deposit.

All of your annual allowance can be invested in either stocks & shares, cash, innovative finance ISAs or lifetime ISAs, or you can split it between more than one type, up to the overall annual limit of £20,000 with either the same or a different provider. However, the maximum annual amount you can save in a lifetime ISA is £4,000.

You are also able to transfer money saved in previous years’ cash ISA holdings to stocks & shares ISAs and vice versa without affecting your current year’s annual allowance. Innovative Finance ISAs cannot be transferred to other ISA wrappers, however it is possible to transfer existing ISA funds into IF-ISAs.

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