ISA ISA – Detailed


What is ISA?

An ISA (individual savings accounts) is effectively a tax-free wrapper in which you can hold either stock market-based investments or a traditional savings account. You do not have to declare any income from them, which makes ISA a means to bypass captain gain tax from the government. You can use an ISA to save cash, or invest in shares.

How much can I save in an ISA?

The annual ISA allowance for everyone is £11,280. The cash limit in the overall allowance is £5,640 and the balance can be invested in stocks and shares. Alternatively, you can invest £11,280 in worth of stocks and shares.

How does it work?

ISA allowance rises in line with inflation each year. ISA allowance is linked to the retail price index.

A cash ISA can be held with one provider and the remainder of the overall allowance in a stocks and shares ISA from another provider, or it can be all put together with the same company.

You can withdraw your tax-free savings whenever you need to, although once withdrawn you cannot put this money back into an ISA without it counting as a new subscription.

The ISA allowance is a “use it or lose it” allowance; investors who don’t make the maximise these tax-efficient savings plans cannot “roll over” this Isa into the next tax year.

When to open an ISA?

The tax year runs from 6 April to 5 April the next year. You get a new ISA allowance each tax year, so it is a good idea to use as much of your allowance as you can within that time.

If you don’t use it, you lose it- unused allowances don’t rollover to the next year. You can pay money into your ISA at any time of the year but many people leave it to the last minute, making March a busy month for ISA sales.


Types of ISA

In general, there are two types of ISAs available on the market, namely Cash ISA and Stocks and Shares ISA.

What is a Cash ISA?

A Cash ISA is a savings account from which you can accumulate interest. The only difference from a Cash ISA and a standard savings account is that the interest you earn within a Cash ISA will not be regarded as a taxable income and you are not required to declare your financial gains.

Rules for Cash ISA

Although a Cash ISA is beneficial for everyone who is planning to save some money for the future, there are certain rules you should know before opening a Cash ISA.

1.    You need to be a UK resident or a Crown employee in order to quality for opening a Cash ISA.

2.    You must be 16 or over to become eligible for a Cash ISA.

3.    You cannot have a joint Cash ISA with someone else.

4.    Currently, you can only save up to £5,640 a year in a Cash ISA.

Cash ISA, who is it for?

ISA is particularly good for people on higher incomes who are taxed at the rate of 40% on all their savings and investment income. There is no risk involved in a Cash ISA, you will simply gain interest for your money. Therefore, you should make sure you get the best interest rate for your Cash ISA. The cautious cam simple use Cash ISAs as a secure place to hold their cash.

What is a Stocks and Shares ISA?


Stocks and Shares ISAs are a tax-efficient way for you to invest money. However, unlike Cash ISAs, stocks and shares ISAs are not always completely tax-free. If you use your stocks and shares ISA to invest in ‘interest bearing’ investments, like corporate bonds, then the interest you receive is completely tax-free whatever tax band you fall into. However, dividends paid on share-based ISA investments (equity investments), like unit trusts, have a 10% tax credit deducted, which cannot be reclaimed.

If you invest in a stocks and shares ISA, be prepared to take a risk with your money. There is no guarantee you will get back the amount you put in. However, you can spread your risk by investing across a range of investment options, from bonds, gilts to individual shares.

Rules for Stocks and Shares ISA


5.    A UK resident or a Crown employee

6.    Stocks and Shares ISA is for 18 or over

7.    You cannot have a joint Stocks and Shares ISA

8.    Invest in shares or funds in an ISA and any capital gains will be tax-free and there is no further tax to pay on any dividends you receive

Stocks and Shares ISA- who is it for?

The more adventurous can invest in the stock market through a Stocks and Shares ISA in search of superior returns. Depending on your willingness to take risks, there are many different types of stocks and shares in line with various risk levels from which you can choose, of course, the return on your investment will be also in parallel with the different risk levels.

How to transfer money from Cash Isas to stocks and shares Isas?

You can have both ISAs by taking advantage of ISA’s flexibility to spread savings between different types of asset.

If you have money saved from a previous tax year, you can transfer some or all of the money from a Cash ISA to a stocks and shares ISA without this affecting your annual ISA investment allowance.

Money saved in the current tax year:

  • savers are able to transfer money saved in the current tax year from a cash ISA to a stocks and shares ISA, but they must transfer the whole amount saved in that tax year in that cash ISA up to the day of the transfer.
  • the money transferred is then treated as if it had been invested directly into the stocks and shares ISA in that tax year; the saver is then still able to save or invest the remainder of their £11,280 annual ISA investment limit in that tax year, including up to £5,640 in a cash ISA

Where to get an ISA?

There are a variety of places where you can send up your ISAs. Below is a list of the most common places for you to consider:

  • Banks and Building Societies
  • National Savings and Investments
  • Financial Advisors
  • Some Supermarkets and Retailers
  • Fund Managers
  • Fund Supermarkets
  • Discounted Brokers
  • Online share dealing sites

Most people still need to be convinced of the merits and relative safety of buying, banking and investing online. Otherwise, they will use the Internet to search for product and provider information and to browse financial websites and then proceeding to buy via other channels.

Related Articles

ISA – Basics

ISA – Overview of Choice

Cash ISA

Stocks & Shares ISA


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