What is an ISA Account?

We know that many of you are already savvy investors and many savers know about ISAs. However, our lender base is made up of a variety of different people with varying levels of experience and understanding, so we thought we’d write a short informative piece on ISAs to help answer any questions our lenders might have.

What is an ISA?

ISA stands for Individual Savings Account. Normally, any interest you earn would be taxable. However, an ISA allows you to save or invest without having to pay tax on the interest or investment returns that you receive. There are a number of different kinds of ISA, the rules for each vary.

How do they Work?

If you have an ISA, you’ll have an ISA allowance limit. You may save or invest money up to the limit amount without paying tax on your returns. Each year HMRC review the ISA Allowance and may from time to time change the limit.

For the Tax year from 6th April 2018 5th April 2019 the limit is set at £20,000. So, ISA account holders may save up to this amount, but must do so before the 5th April 2019., if you do not then your allowance will not carry over to the next year.

Because the allowance is a yearly limit, you can grow your ISA account by the limit each year. So after three years of adding £20,000 each year, you will have a £20,000 ISA.

Who can have an ISA?

Anyone can open an ISA provided they are:

  • A UK Resident
  • Have a National Insurance Number and;
  • Aged 16 or older*

As the name implies, you cannot have a joint account ISA, the ISA must be held in one person’s name.

*Except for Junior ISAs

What Type of ISAs are there?

There are 4 main types of ISAs these are:

  1. Cash ISA
  2. Stocks and Shares ISA
  3. Innovative Finance ISAs
  4. Life Time ISAs

Cash ISAs

Cash ISAs simply allow you to deposit cash in a savings account and earn a pre-set interest rate of return whilst benefiting from the tax wrapper.

There are two types of Cash ISA; Instant Access and Fixed Term.

An Instant access ISA allows you to withdraw and deposit funds as often as you like, provided that you do not go over the tax allowance. This gives you peace of mind knowing that if you need to access your funds you can, however these accounts will often pay lower interest rates.

A Fixed Term ISA is an account where you deposit your funds for a predetermined fixed length of time, and you will not usually be able to access the funds until the end of the term.

Stocks and Shares ISA

These ISAs are stocks and shares accounts which benefit from the tax wrapper.

Unlike a Cash ISA, in a stocks and shares ISA your money is at risk, but this risk can be rewarded with a better return in comparison to a cash ISA.

Innovative Finance ISA

An IFISA allows you to use the tax wrapper on your investment returns through peer-to-peer lending platforms, such as rebuildingsociety.com.

Similarly, to the Stocks and Shares ISA, your money is at risk in this type of ISA, but again ISAs can often pay a higher return than cash ISAs.

Lifetime ISA

A Lifetime ISA can be used to help you save to buy your first home. A Lifetime ISA allows you to put in up to £4,000 per tax year until you are 50. It’s important to remember that the £4,000 contribution to your Lifetime ISA will count towards your annual ISA Allowance.

How Many ISAs Can You Have?

You can only pay into one of each kind of ISA in any tax year. So, for example, you could potentially have a Cash ISA, an Innovative Finance ISA (IFISA) and a lifetime ISA.

However, you are allowed to pay into a new cash ISA, IFISA etc each year, which means you could end up with multiple ISA accounts.

 

Can you withdraw and deposit whenever you want?

This really depends on the type of ISA that you have and the conditions around the ISA. Whether you can withdraw or not will be down to whether your ISA account is flexible.

If your ISA is Flexible you will be able to withdraw and pay back in money during the same tax year without it having an effect on your Allowance. Furthermore, you will also be able to withdraw and ISA money you have from previous tax years and will have until the end of the tax year to pay it back.

If the ISA is not flexible, any money you try and pay back in after withdrawal will count towards your remaining ISA allowance.

Can you Transfer an ISA?

Yes, you can choose to move your ISA to another ISA manager whenever you like, but you must make sure you do it correctly, by following the ISA providers Transfer In / Out procedures. If you simply move your ISA by withdrawing it in cash or cheque or simple bank transfer you will lose the ISA status on that money.

rebuildingsociety.com is an ISA Manager and offers lenders the opportunity to open an Innovative Finance ISA account allowing lenders to enjoy the tax wrapper benefits on their returns made through lending to businesses on our platform. Find out more about our IFISA account now. 

 

If you would like more specific advice on ISAs or Tax please visit the HMRC website or speak to a specialist tax advisor.

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