Cash ISAs

A cash ISA, or individual savings account, is a savings account that pays interest on your savings tax-free. Everyone over the age of 16 in the UK has an ISA allowance of £20,000 for the 2021/22 tax year. This can be split across savings in a cash ISA or a stocks & shares ISA in whatever proportion you like. Your ISA allowance resets on 6 April every year at which point any unused allowance from the previous tax year will be lost. The future interest earned on savings already in your ISA at this point will also be tax free as long as you keep them in your ISA.

The ISA limit is an individual one, an ISA can only be held in one name, joint ISAs are not available. In addition, whilst you can hold more than one ISA, you can only pay into one of these each year. This applies for both Cash and Stocks & Shares ISAs.

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Stocks & Shares ISAs

A stocks and shares ISA is a tax efficient savings account that allows you to invest your money in a range of different investments, including (but not limited to) company shares (sometimes called equities), government bonds and corporate bonds. Everyone over the age of 16 in the UK has an ISA allowance of £20,000 for the 2021/22 tax year. This can be split across savings in a cash ISA or a stocks and shares ISA in whatever proportion you like. Your ISA allowance resets on 6 April every year at which point any unused allowance from the previous tax year will be lost. Any dividend income, capital gains or interest earned on investments already in your ISA at this point will also be tax free as long as you keep them in your ISA.

The ISA limit is an individual one. An ISA can only be held in one name, joint ISAs are not available. In addition, whilst you can hold more than one ISA, you can only pay into one of these each year. This applies for both cash and stocks and shares ISAs.

Lifetime ISA

The Lifetime ISA (or ‘LISA’) was introduced from 6 April 2017 for those aged between 18 and 40 at the date it is first opened. The LISA is an individual account so if you’re in a couple you can each have your own LISA. Savings of up to £4,000 can be made each tax year and you can pay in lump sums as well as make regular payments. For savers under the age of 50, at the end of each tax year, the Government will add a £1 bonus for every £4 saved. This is effectively the same as providing basic rate (20%) tax relief on a £5 pension contribution from gross pay. The bonuses you earn do not count towards your ISA allowance for that tax year.

Help to Buy ISAs

The Help to Buy ISA closed to new accounts at midnight on 30 November 2019. If you have already opened a Help to Buy ISA (or did so before 30 November 2019), you will be able to continue saving into your account until November 2029.

Under the Help to Buy ISA scheme you can save up to £200 every month and the Government will boost your saving by 25%! So, if you pay in the maximum of £200, the Government will give you another £50 on top. Plus, you can pay in a futher £1,000 when you first open it, so you can actually save £1,200 in the first month and receive a £300 top up.

You will earn interest on your savings as well as receiving the 25% top up.

Just like cash ISAs, you can transfer your Help to Buy ISA to another provider in the event that you can get a better rate elsewhere.

Disclaimer

We are not Independent Financial Advisers (IFAs) and nothing on this website should be construed as independent financial advice. If you feel you would benefit from speaking to an IFA about your personal circumstances, you can find more information here.