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You may have heard the term ISA when speaking about saving money tax efficiently, but do you understand what they are, what are the different types and what you can do with them?

In this article, our ISA experts will explain “What is an ISA?”, “How Much You Can Pay Into An ISA?” and “Can You Transfer Your ISA To Another Provider?

So, let’s get started with the basics.

 What Is An ISA?

An ISA or, to give it the full title Individual Savings Account is where your investment can grow tax-free, meaning your savings enjoy a little boost from the government. They are a great way to save or invest your money, giving you flexible access should you need to withdraw funds for any reason.

ISAs were first introduced in April 1999 to replace Personal Equity Plans (PEPS) and Tax-Exempt Special Savings Accounts (TESSAs). There are currently three popular types of ISAs into which you can invest or save money. They are:-

  • Cash ISAs – This type of ISA is predominately sold through High Street Banks and Building societies and offers a safe home for your money. With a Cash ISA, your money isn’t invested in the stock markets like a Stocks and Shares ISA and will only grow through interest payments. The interest growth delivered by a Cash ISA is low compared to other ISA products.
  • Stocks and Shares ISAs – As the name suggests, a Stocks and Shares ISA allows you to invest in the Stock Market and take advantage of stock growth performance. Stocks and Shares ISAs are riskier than Cash ISAs. The value of your ISA can go down depending on the performance of your stocks. Many providers offer Stocks and Shares ISAs, and these can deliver a fully managed ISA or give you the ability to choose the stock and companies you want to invest in.
  • Junior ISAs – If you’re a parent or guardian, you can invest in a Junior ISA, which will help you build up an investment fund for your child, which they can access at 18 years of age. The maximum investment in a Junior ISA is lower at £9,000 per annum per child. Once open, anybody can add to the Junior ISA investment pot on your child’s behalf, like grandparents, friends, or other family members. Investing in a Junior ISA does not affect your annual ISA allowance.

How Much Can You Pay Into An ISA?

Every tax year, you can invest up to a maximum of £20,000 (the tax year 2021/2022) in an ISA. The ISA limit doesn’t mean that you can only have £20,000 in your ISA, as you can invest into the same ISA year on year.

You can hold more than one ISA, but you cannot open more than one ISA in each ISA category per year, and the total investment cannot exceed £20,000.

So, in the same tax year, you can open one of each of the below ISAs: –

Cash ISA

Stocks and Shares ISA

Lifetime ISA

Innovative Finance ISA.

As with all investments, the value of your funds can go down as well as up, and you may not get back as much as you invested.

 Can you take money out of your ISA flexibly?

The benefit of ISAs compared to Pensions is that you can withdraw your money at any time without losing any tax benefits and not restricted to people over 55 like a Pension.

If your ISA is ‘flexible’, you can take cash out and then put it back in again throughout the year without reducing your current year’s allowance.

If your ISA is ‘non-flexible’, then the £20,000 maximum investment remains, regardless of how much money you withdraw.

For example, Your ISA investment is at the ISA limit of £20,000, and you decide to withdraw £10,000 from your ISA.

With a ‘flexible’ plan, you can top-up your ISA again to the £20,000 maximum investment at a later date in the tax year. With a ‘non-flexible’ plan, you cannot add the £10,000 back into the plan in that tax year to maximise the tax-efficiency of your investment.

Can I transfer my ISA to another provider?

Yes, you can transfer your Cash or Stocks and Shares ISA to another provider at any time. A straight transfer from one provider to another shouldn’t count towards your ISA allowance, providing the ISA being transferred hasn’t been invested within that tax year.

For example, you can transfer a £50,000 existing ISA paid into during previous tax years without using your tax allowance from 2021/22 tax year. You can still invest to the full £20,000.

A transfer of an ISA can take up to 30 calendar days, depending on the ISA products you hold.

Please speak with your ISA provider or a financial adviser to find out about any ISA product restrictions.

Can we have joint ISAs?

Unfortunately, no, you cannot open an ISA in a joint name. ISAs are set up for individuals, and the tax efficiencies of an ISA is based on an individual’s tax allowance.  

Each UK resident has an annual ISA allowance – 2021/22 is £20,000. This tax allowance runs through the financial tax year 6th April till 5th April. This ISA allowance is non-transferable, and you cannot share or combine your ISA limits.

Where can you get ISA advice?

Our ISA and investment specialists can help you find the best solution for your hard-earned money. Your adviser will find out what you are looking to achieve with your savings and offer the best solutions for you and your money.

It’s easy to get started with a free, no-obligation appointment with one of our ISA specialists. Either call 0161 413 7051 or click here to find out more.