Individual Savings Accounts & General Investment Accounts

What is the ISA Allowance?

Your ISA allowance for the current tax year is £20,000. The tax year runs from the 6th April each year. The Government sets the ISA limits and rules, so they can change. To be eligible for this tax-efficient allowance, you have to over the age of 18 years (16 for a Cash ISA), and a resident of the United Kingdom. Each year you can split your total allowance in any way you like between a Cash ISA, Investment ISA and Innovative Finance ISA, and up to £4,000 of the limit in a Lifetime ISA. You can’t carry any of your ISA allowance forward into the next tax year so, if you haven’t used your full allowance by the 5th April, you simply lose it.

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    Types of Saving Accounts available

    ISAs were introduced on 6th April 1999 and are tax-free accounts.

    Available to any individual aged 16 years or over who is resident and ordinarily resident in the UK. Some providers offer fixed-rate terms, however these usually also have tie-in periods.

    Invests in a range of assets, such as funds, bonds, property or stocks and shares and grows free of tax (other than tax that’s already paid, i.e. on dividends from UK shares).

    You can save up to your usual £20,000 ISA allowance for this tax year. All Flexible ISAs allow you to withdraw money from your ISA and replace withdrawn funds within the same tax year without affecting your current year ISA limit of £20,000.

    A child’s parent or legal guardian must open the Junior ISA account on their behalf. Money in the account belongs to the child, but they can’t withdraw it until they turn 18, apart from in exceptional circumstances. The Junior ISA limit is £4,260 for the tax year 2018-19.

    Lets you lend to others through a peer-to-peer loan, without paying tax on the interest you earn.

    The LISA allows you to save up to £4,000 tax free each year. The government will then add a 25% bonus on top of what you have already paid in, so if you save the full £4,000 each year, you’ll have £5,000 at the end of the tax year. LISAs are available for savers aged between 18 and 39, and have been designed for two specific purposes: to fund a first-time property purchase and to save for retirement. You may take some or all your cash out of a LISA before your 60th birthday even if you’re not buying a property. In the first year that LISAs are available, there won’t be a penalty for doing so, although you won’t receive your bonus as this is only paid at the end of the first year. After the first year, there would be a 25% penalty for withdrawing the cash so it is best to use the LISA if you’re sure that the cash will be used for one of the two defined purposes.

    A rule change back in 2013 means that AIM-listed stocks and shares can also now be held in an Investment ISA. Money invested directly in Alternative Investment Market (AIM) listed shares are potentially exempt from inheritance tax, subject to certain circumstances. Provided that you have held the investment for at least two years when you die, the funds can be left to your beneficiaries free from inheritance tax.

    New rules came into force in April 2015, which mean that you can now inherit your partner’s ISA savings. The rules mean that if an ISA holder dies, the surviving spouse or civil partner will be able to inherit the ISA and retain its tax-free benefits.The surviving partner is given an ‘additional permitted subscription’ known as an APS: a one-off ISA allowance that’s equal to the value of the ISA at the date of the holder’s death. This won’t be counted against the normal ISA subscription limit but will instead be added on to the surviving partner’s own ISA limit.Anybody whose spouse or civil partner died on or after 3rd December 2014 is eligible, and the APS could have been claimed since the start of the 2015/16 tax year.

    A general investment account offers a simple way to invest more money once you’ve used up all of your ISA limit for the tax year. It’s flexible, and there’s no limit to how much you can contribute.

    Unlike an ISA or Pension, there are no tax benefits for investing in a General Investment Account. You pay income tax and capital gains tax in accordance with your personal tax situation.

    However, a General Investment Account can be useful if you don’t want to lock your money away in a Pension until the age of 55