What is an ISA?

16th October 2017
What is an ISA

An ISA, or Individual Savings Account, is a type of savings or investment account which has significant tax benefits and can be used in a variety of ways.

There are a range of ISA account types, each offering different services and suited to differing needs and circumstances:

Cash ISA

Who can have one?

Anyone over the age of 16.

What is the maximum that can be paid in?

£20,000 per year. 16-17-year-olds are granted an additional £4,000 Junior ISA allowance.

Who is it for?

People who are looking to shelter their savings from tax liability.

Cash ISAs offer a tax-free alternative to standard savings accounts. Anyone aged 16 and over can open a cash ISA and make deposits up to the adult ISA allowance each year, currently this is £20,000
For people aged 16 and 17, an additional junior ISA allowance of £4,000 per year is added to this figure. Cash ISAs generate interest which is tax-free.

Stocks & Shares ISA

Who can have one?

Anyone over the age of 18.

What is the maximum that can be paid in?

£20,000 per year.

Who is it for?

People who are looking to invest their money, whilst sheltering it from tax liability.

A Stocks & Shares ISA is an account through which you can invest in a range of options, including:

  • Stocks
  • Shares
  • Government bonds (Gilts)
  • Corporate bonds
  • Investment and unit trusts
  • Open Ended Investment Companies (OEICs)

Stocks and shares ISAs are available to UK residents over the age of 18 and are significantly riskier than cash ISA’s because investment values can rise and fall over time.

Innovative Finance ISA

Who can have one?

UK residents aged 18 and over

What is the maximum that can be paid in?

£20,000 per year

Who is it for?

Those wishing to invest through peer-to-peer lending and crowdfunding new ventures.

As crowdfunding and peer-to-peer lending becomes more popular, the Innovative Finance ISA combines the ability to assist and fund new ventures whilst protecting any gains from taxes.
Innovative Finance ISAs and investments run the risk of losing capital because of borrowers defaulting or failing to make repayments.

Lifetime ISA

Who can have one?

UK residents aged 18-39.

What is the maximum that can be paid in?

£4,000 per year, which is deducted from the annual adult ISA allowance.

Who is it for?

Under-40s looking to save toward a deposit for their first home or retirement funds.

The Lifetime ISA is newly-introduced and is designed to help those aged between 18 and 39 to save towards their future. As a government-backed initiative, savings in Lifetime ISA accounts attract a government bonus of 25%, if the money is used toward a first house deposit, or remains in the account until the owner’s 60th birthday and is then used as a retirement fund. Withdrawals can be taken out of a Lifetime ISA, but will be subject to a 25% fee – forfeiting the government bonus, unless used for buying property or for retirement funding.

There is an exception to the withdrawal rule, if the owner is diagnosed with a terminal illness and has a life expectancy of less than one year.

Lifetime ISAs have an annual deposit limit of £4,000 which counts toward the owner’s annual personal allowance each tax year.

Help to Buy ISA

Who can have one?

UK residents over the age of 16 who do not own property.

What is the maximum that can be paid in?

  • £1,200 within the first month
  • £200 per month after that

Who is it for?

First time buyers looking to shelter their deposit savings from tax liability and who wish to take advantage of the government bonus available.

Help to buy ISAs were introduced to assist savers in collecting the deposit for their first property. The account can be opened with an initial deposit of up to £1,200 in the first calendar month, followed by monthly savings of up to £200. When the ISA is closed and the savings are withdrawn to be used as a mortgage deposit, the government will apply a 25% bonus.

The bonus is capped at a £3,000 return on a £12,000 balance, meaning that Help to Buy ISA holders could have a £15,000 deposit saved after 4 ½ years.

For more information about ISAs and how they could help you to protect your savings or work toward your financial goals, get in touch using the phone number at the top of the page.