What is a ISA?‘ISA’ stands for Individual Savings Account, and it’s a tax-efficient way to invest your money. While you’d pay tax on interest from a savings account, an ISA lets you keep all the gains. As a result, your investment pot could have a better chance to grow.
There are six types, designed to suit different financial needs and goals. These are:
Stocks and Shares ISA - invests in funds, unit trusts, bonds and shares in companies. You can decide the exact make-up of your ISA, and change it whenever you like. If you’re willing to take some risk with your money, Stocks and Shares ISAs have the potential to offer higher returns than Cash ISAs.
Cash ISA - works much like an ordinary savings account, except you don’t pay tax on the interest. Some Cash ISAs offer instant access or fixed-rate deals.
Junior ISA - a tax-efficient way to invest for a child under 18. You can choose either a Cash Junior ISA or a Stocks and Shares Junior ISA. The money grows tax-free and only your child can withdraw it – when they reach the age of 18.
Lifetime ISA (LISA) - designed to help you save towards either your first home purchase or your retirement. A Lifetime ISA can include either cash or stocks and shares. To open one, you must be between the ages of 18 and 39. You can pay in up to £4,000 in one tax year, and this counts as part of your ISA allowance of £20,000. The government adds a 25% bonus to your savings, up to a limit of £1,000 a year. You can withdraw your money to pay for some or all of your first home, or when you reach age 55. If you take your money before that date, you may have to pay a 25% tax charge.
Innovative Finance ISA (IFISA) - this is made up of peer-to-peer loans or crowd-funding debentures. It lends your money to people or businesses in return for a set amount of interest.
Help to Buy ISA - designed to help you save towards your first home. The government will add a 25% bonus to your savings, up to £950 in the first year, and £600 in following years. To open one you must be 18 or over. You can withdraw your savings to pay for some or all or your first home. If you withdraw your money before that time, you may have to pay a 25% tax charge.
• Resident in the UK. Or, if you don’t live in the UK, you must be a Crown servant (for example diplomatic or overseas civil service) or their spouse or civil partner
• Age 16 or over for a Cash ISA or Help to Buy ISA
• Age 18 or over for a Stocks and Shares, Junior or Innovative Finance ISA
• Age 18 or over, but under 40, for a Lifetime ISA
You can’t hold an ISA with, or on behalf of another adult. But you can open a Junior ISA (JISA) for a child under 18.
If it’s a Flexible ISA, like ours, you can take money out, then put it back later in the same tax year without reducing your current year’s allowance.
Here’s an example:
Your ISA allowance is £20,000. You put £10,000 into an ISA during the 2018 to 2019 tax year. You then take out £2,000. The amount you can now put back in during the same tax year is £12,000 (your remaining allowance of £10,000 plus the £2,000 you took out).
• Cash ISA
• Stocks and Shares ISA
• Junior ISA
• Innovative Finance ISA
Plus one of either:
• Help to Buy ISA
• Lifetime ISA
Depending on what type of ISA you have, there are some further rules:
• If you transfer cash or assets from a Lifetime ISA to a different type of ISA before you reach the age of 60, you’ll have to pay a withdrawal fee of 25%
• You can transfer cash from your Innovative Finance ISA to another provider, but you may not be able to transfer other investments from it
The time it takes to transfer an ISA depends on the provider it’s being transferred from, however should typically take:
• 15 working days for a Cash ISA or a Cash Lifetime ISA
• 30 working days for a Stocks and Shares ISA, investments held in an Innovative Finance ISA, and Stocks and Shares in a Lifetime ISA
• You’re the child’s parent or legal guardian
• The child is under 18
• The child doesn’t have a Child Trust Fund (if they do have a CTF, you can open a Junior ISA provided that you transfer the full CTF)
• Your child is a resident of the UK
Currently, you can pay up to £4,368 into a Junior ISA each tax year, and the child can only access the money when they turn 18.
Find out more about Junior ISAs.
Please note, to open a VitalityInvest Junior ISA, you must be resident in the UK. Or, if you don’t live in the UK, you must be a Crown servant (for example diplomatic or overseas civil service) or their spouse or civil partner.
• the value your partner held in their ISA when they died, or
• the value of their ISA when it closed
It’ll stay open until either your executor closes it or the administration of your estate is completed. If neither of these things happens within three years and one day of your death, your ISA provider will close the ISA. There’ll be no income tax or capital gains tax to pay up to that date, but ISA investments will form part of your estate for the purposes of inheritance tax.
For the exact details it’s best to check the terms and conditions of your ISA for details.