The Individual Savings Account (ISA) is 21 this year. Launched on 6 April 1999, ISA savings were introduced to replace Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSA’s). There are now four main types of ISA – Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs and Innovative Finance ISAs.
Cash ISAs are a savings account where interest is never taxed. The interest you earn will not count towards your personal savings allowance. There are various cash ISAs available, such as instant access, fixed-rate or regular savings.
Stocks & Shares ISAs
A Stocks & Shares ISA is an investment ISA. There are many different types of investment available within a stocks & shares ISA. The value of investments and the income from them can fall as well as rise and past performance is not a guide to future performance. You may get back less than you invested as investment returns are not guaranteed.
You can use a Lifetime ISA to save for your first home or save for later life. You must be between age 18 to 40 to open a Lifetime ISA.
Innovative Finance ISAs
An ISA that contains peer-to-peer lending, matching up investors who are willing to lend with borrowers, who could be individuals, property developers or businesses.
So, whether you are new to investing or an experienced investor, seeking Independent Financial Advice from a Financial Adviser can help tailor what investment is right for you. For more information on arranging an initial chat to discuss your requirements, you can contact us via email or call our office on 01603 927760.
ISA savings subscription limits
Each tax year (6 April to 5 April) there are restrictions on how much you may subscribe to your ISA savings. If you had saved the maximum amount available each year, every year since inception you would have amassed a grand total of £226,560 or £229,560 if you were over 50 in 2009-10!
The current subscription limits for 2020/21 tax year is £20,000. You can choose how you use your ISA allowance, however there is a restriction of £4,000 you can contribute into a Lifetime ISA or historic Help to Buy ISA (closed to new applicants) in any one tax year.
The deadline for each tax year is 5 April, the end of the tax year – any unused allowance does not roll over so it’s important to use it if you can.
Transferring an ISA savings account
ISA savings can be transferred from one provider to the other at any time. You can transfer your savings to a different type of ISA or the same type. Money invested in previous tax years can be transferred in full or part, yet if you wish to transfer during the current tax year it must be transferred in full.
Always contact your ISA provider you wish to transfer to, to move your account – if you withdraw the money without doing this, you will lose that part of your tax-free allowance. The ISA transfer process should take no longer than 15 working days for cash ISAs and 30 working days for other types of transfer.
Inheriting an ISA savings account
If you die, your ISA will end if your executor closes it or the administration of your estate is complete. The ISA provider will close your ISA 3 years and 1 day after you die if no instruction is given. ISA investments will form part of your estate for Inheritance Tax purposes.
It is little known that if you die, your spouse or civil partner can inherit your ISA allowance. Your spouse or civil partner can add a tax-free amount up to the value held in your ISA when you die or the value of the ISA when it was closed. Contact your ISA provider for details.