TISA - Tax Incentivised Savings Association - Individual Savings Accounts (ISAs)

Individual Savings Accounts (ISAs)

OFT response to Consumer Focus super-complaint in relation to Cash ISA transfers - please see here
Revised Guidelines available here
(Please note that the Guidelines shown here are relevant from July 2011).

Individual Savings Accounts
(based on the regulations applicable from 6 April 2010)

Please click below to view an interview Tony Vine Lott (Director General, TISA) gave to Selftrade about some of the features of ISAs.

What is an Individual Savings Account?
An Individual Savings Account (ISA) allows individuals to save money without paying tax.

There are two different types - a cash ISA and a stocks and shares ISA. Many ISA managers only offer one type of ISA, some offer both types. You can save up to 10,680 in any one tax year 6 April 5 April). Within that limit, you can put money in and take money out at any time. And you do not have to declare the money or investments you have in your ISA on any forms from your Tax Office or when claiming income-related benefits such as Incapacity Benefit or Carers Allowance.

Note: With effect from 2011 the ISA subscription limits will increase in line with RPI.

Cash ISA
A cash ISA is a good idea for short to medium term savings. You can get your money out quickly and easily and they usually pay better rates of interest than other types of savings accounts. You can save up to 5,340 every tax year in a cash ISA.

Stocks and shares ISA
A stocks & shares ISA may be more appropriate for medium to long term savings. In this type of ISA, your money can be invested in individual shares, collective investments, Government stocks (gilts) or bonds. Over a number of years, you usually get a better return on your investment than if it was held in cash but it is important to remember that your investment may go down as well as up in value, particularly over the short term. You can save up to 10,680 every tax year in a stocks and shares ISA. However, if you also put money into a cash ISA in the same tax year, that must be treated as part of the 10,680.

Where can I get an ISA?
You can get an ISA from an ISA manager or provider. These include banks, building societies, insurance companies, fund managers, financial advisers, stockbrokers, and many others. You can also get an ISA from many other organisations including friendly societies, credit unions, some shops and supermarkets.

How many can I have?
You can have one cash ISA and one stocks and shares ISA in every tax year up to a total limit of 10,680. This can be spread across the two types of ISA but with a maximum of 5,340 in cash.

An example of saving in ISAs
You save 2,680 in a cash ISA at the beginning of the tax year. In the same tax year you could save up to another 8,000 in ISAs. This could be up to 2,660 in the same cash ISA and the remaining allowance in a stocks and shares ISA with either the same or another provider.

What will it cost me?
It doesnt cost anything to open a cash ISA. For a stocks and shares ISA, you may have to pay a charge to open it and there may also be an annual charge.

So what are the tax advantages?
If you have a cash ISA, there is no tax to pay on any interest earned. If you have a stocks and shares ISA, there is no capital gains tax to be paid on any growth on your investments or any additional tax if you are a higher rate tax payer. Also, you do not have to declare your ISA savings or investments on your tax return.

Can I change my mind?
Yes. You can take your money out at any time.

You can also change your ISA. If you have a stocks and shares ISA you can transfer this to a stocks and shares ISA with a different manager. If you have a cash ISA you can transfer this to either a stocks and shares ISA or to a cash ISA with another ISA manager. Some ISA managers do not allow you to transfer part of your ISA, some may charge you and some may insist that you sell any investments and transfer the cash.

Can I change the investments in my ISA?
Yes. You can change your investments at any time but your choice may be limited by what is allowed to be held in an ISA and by what your ISA manager provides. If your current manager does not provide what you want, then you may consider transferring your ISA to a manager who does.

What if I move abroad?
If you move abroad your money can stay in your ISA and you can transfer it to a different ISA manager, but you will not be able to put any additional money into the ISA.

What if I die?
When you die, your ISA will end. There will be no tax to pay on any interest, income or capital earned on your savings and investments up until the date of your death. Tax on everything earned after your death will have to be paid by your beneficiaries. Your ISA manager may sell your investments and pay the proceeds to your beneficiary or may transfer the investments into their name. Your ISA does form part of your estate for Inheritance Tax purposes. However, the proceeds of your ISA can be paid to your spouse or civil partner without incurring Inheritance Tax liabilities.