ISA (Individual Savings Account)

An Individual Savings Account (ISA) is a special type of savings account available in the UK, offering a tax-free savings allowance of up to £20,000 per year. This means you won't have to pay any tax on the interest, income, or Capital Gains from money saved in an ISA.

‍

Types of ISAs and Their Characteristics

• Cash ISA: This allows for flexible withdrawals and the option for fixed interest rates. You can access your money whenever needed.
• Stocks and Shares/Innovative Finance ISA: Investments are made in the stock market or through peer-to-peer loans, with no tax paid on returns. Note that the value of your investments can go up as well as down.
• Lifetime ISA: Open to individuals aged 18 to 40, you can save up to age 50 and start withdrawing funds from age 60, receiving a 25% bonus on contributions each year.
• Help to Buy ISA: Designed for first-time homebuyers saving for a home worth up to £450,000 anywhere in the UK. It offers a 25% bonus on contributions at the time of purchase. Closed to new applicants since 2019, but existing account holders can still proceed with their purchase until 2029.
• Junior ISA: A savings account for individuals under 18, which transitions to a regular cash ISA once the individual reaches adulthood. Parents can manage the account until the child turns 16.

‍

ISA Savings Limits and Age Requirements

• Cash ISA: £20,000 annual limit, available to individuals aged 16 and over.
• Stocks and Shares/Innovative Finance ISA: £20,000 annual limit, for those aged 18 and over.
• Lifetime ISA: £4,000 annual limit towards the overall £20,000 ISA allowance, for individuals aged 18 to 40.
• Help to Buy ISA: Allows monthly savings of £200, targeting individuals aged 18 to 40. Though no longer available to new savers, existing account holders can continue saving.
• Junior ISA: £9,000 annual limit for individuals under the age of 18.

You have the flexibility to allocate your annual ISA allowance across different types of ISAs but are limited to contributing to one of each type per tax year. Should you exceed the annual allowance, the excess funds will need to be withdrawn, and any interest earned on the surplus amount may be subject to tax.