ISAs

Stocks & Shares (S&S) ISA 📈

When you invest within a S&S ISA, any capital gains from these investments will be free of Capital Gains Tax, and any income payments or dividends will be free of income tax.

This makes S&S ISA the starting point for investing in the UK. It only makes sense to invest in a General (taxable) Investment Account if you have already filled your ISA for the year.

See further information on: Investing 101, index funds, and choosing a broker to open an account with.

Cash ISA 💷

Cash ISAs tend to offer slightly lower rates than bank savings accounts, but all interest earned is tax-free. This can work out better than a higher rate that is taxed. See our savings page for more information on tax on interest, when you might need to pay it, and when an ISA might work out better than a savings account.

Cash ISAs can be ‘easy access’, meaning there’s no penalty to withdraw your money at any time, or they may be ‘fixed rate’, where your money is locked away at a fixed interest rate for some period of time (e.g. 1 year, 2 years) and you’ll pay a penalty to withdraw it early.

When a Fixed Term ISA reaches maturity, the ISA typically reverts to an easy access ISA (often with a poor interest rate). You would generally want to transfer it to a new account with a competitive interest rate, whether another fixed rate or an easy access account. Set a calendar reminder, and make sure to use the ISA transfer process, do not withdraw the money into your bank account (unless you want to spend it!).

Note – when interest rates rise, savers with Fixed Term ISAs might find themselves in a dilemma where it might be beneficial to take the withdrawal penalty if it means they can secure better rates in a different ISA. MoneySavingExpert has a calculator to help make this decision.

Lifetime ISA (LISA) and Help to Buy ISA (H2B ISA) 🏠

Lifetime ISAs are designed to help first time buyers saving up for a deposit. Both Cash and S&S LISAs are available. You can put up to £4,000 into a LISA per year, and receive a “bonus” of 25% of your contribution. So if you contribute £4,000, you will receive a £1,000 bonus taking your account to £5,000. They can also be used to save for retirement, although a pension is often more cost effective.

We have a complete LISA article with much more detail.

Help to Buy ISAs are the scheme which preceded LISA. You can no longer open new H2B ISAs, but some savers may still hold them. More information on the LISA wiki page.

Innovative Finance ISA (IFISA) 🤝

⚠️ 　Your capital is fully at risk in a IFISA!
There is currently no Financial Services Compensation Scheme protection for peer-to-peer lending. In the event that your platform goes bust or the underlying borrowers default you will not recieve compensation.

This is an ISA specifically intended for peer-to-peer (P2P) lending.

P2P lending proceeds are currently taxed as income. This means that for those already utilising these platforms the IFISA appears to be useful, however P2P lending is often criticised for having an unsatisfactory risk-adjusted return and poor liquidity.

Despite lending platforms advertising enticing interest rates, these are a best-case scenario before losses and as such these products should never be treated like a cash savings account – only invest money you can afford to lose.

Junior ISA (JISA) 🧒

A Junior ISA can be opened for anybody under age 18 by a parent or guardian. It can either be Cash or Stocks & Shares, and replaced ‘Child Trust Funds’. The annual JISA contribution limit is £9,000 as of April 2024.

For more information on Junior ISAs see our page on investing for children.

Contributions 💳

There is an overall contribution limit of £20,000 per tax year.

Example:
You can save:
- £16,000 in a stocks and shares ISA
- £4,000 in a Cash LISA (picking up an additional £1,000 bonus)
For a total of £20,000 in that tax year.

What happens when a new tax year starts?

Your ISAs won’t close when the tax year finishes. You can keep contributing to your existing ISAs across multiple tax years. You’ll keep your savings on a tax-free basis for as long as you keep the money in your ISA accounts.

Transferring an existing ISA 🚚

Transfers between ISAs do not count as new contributions and do not use up your allowance.

You can transfer to a brand new ISA, or one which is already open. You can transfer all or part of the savings in your ISA from one provider to another. Note if transferring current year contributions, some providers may limit you to transferring the whole amount.

To count as a transfer you must follow the proper process. This means contacting the new provider and asking them to transfer in the other ISA. Withdrawing from one ISA into your bank account and contributing to another does not count as a transfer – it will use the current year’s allowance.

ISA transfers are not instant. Cash transfers are typically completed in 15 working days, S&S within 30 working days. During this time your account access might be restricted.

If transferring a S&S ISA or LISA, you can choose to do so either

• in-specie: your investments are transferred directly to the new provider, (assuming they are available on both platforms). You stay invested throughout the transfer process.
• as cash: your investments are sold, the cash is transferred to the new ISA and you can then re-invest it. You spend some time out of the market.

You can transfer between different types of ISA, as detailed below.

ISA Flexibility ↔️

Some providers offer “Flexible ISAs”. The rules allow you to withdraw any amount from a flexible ISA and retain the ISA wrapper as long as it’s put back into the same ISA within the same tax year.

See example from gov.uk.

Should I use an ISA, LISA or a pension?

See our ISA vs LISA vs pension comparison for more details.

What happens to an ISA if I move to another country?

If you are not UK Tax Resident then you cannot make new contributions to an ISA. You can still move money within your ISA and you do not have to pay tax on it in the UK.

ISAs may not have any tax protection in other countries and may be considered to be taxable savings accounts. You may therefore need to declare dividends, income and gains in the country in which you are tax resident.

What happens to an ISA on death?

ISA money isn’t free of inheritance tax. On death, the funds are considered part of your estate. If somebody dies leaving a surviving spouse or civil partner, the survivor inherits an “Additional Permitted Subscription” allowance equal to the ISA values held on the date of death. This isn’t quite the same as inheriting ISAs, but it is close.

What happens if I pay in more than £20k in one tax year?

It is your responsibility to ensure you do not exceed the annual allowance.

Some ISA providers may display wording like “you have £13,000 of your allowance left” – this is based on the information they have about your activities with them. They have no visibility of additional ISA contributions you may have made elsewhere. If you have ISAs with multiple providers you will need to keep track of this yourself.

If you have exceeded the annual allowance in the current tax year, you should ask your ISA provider to “repair” ineligible excess contributions and related gains, removing them into a taxable account. If the breach of annual allowance occurred in a previous tax year, you should inform HMRC and await instruction from them on any rectification steps required.