Saving in an Individual Savings Account (ISA) means you do not have to pay any tax on any investment return or interest/income received from your ISA.
In the tax year 2017/18 you can subscribe up to £20,000 to an ISA.
The subscription limit has undergone a number of changes since ISAs were introduced in 1999.
Prior to April 2017 there were two types of ISA
- Cash ISAs
- Stocks and Shares ISAs
- Innovative Finance ISAs were introduced in April 2016 and are available from peer to peer lenders.
- The £20,000 limit can be split between the three different types of ISA in any combination but you are unable to subscribe to more than one ISA of the same type in the same tax year.
- Meteor’s product range includes Plans that can be held in a Stocks and Shares ISA or a Cash ISA.
The benefits of ISAs
- No tax is payable on the income, interest or capital growth received from an ISA. However, for Capital Gains Tax purpose, any losses cannot be used to offset any gains made from other investments.
- Any returns from an ISA do not have to be reported on a personal tax return.
All ISA managers must be authorised by the Financial Conduct Authority (FCA) (www.fca.org.uk) before HM Revenue & Customs (HMRC) approve them as an ISA manager. Approval does not mean that HMRC or FCA can guarantee:
- the performance of the ISA
- that the ISA will not lose money
- that the investment will produce a satisfactory return.
Transferring an ISA
You can transfer an ISA to another ISA manager but this must be done in cash, which means that you could lose money if, for example, markets rise while the transfer is being processed or, if you have a Cash ISA, you have not reached the end of a fixed term on which the interest you receive depends. You should also check with your manager if any charges apply.
- A transfer does not need to be transferred to an ISA of the same type. For example, a Stocks and Shares ISA, can be transferred to a Cash ISA, Innovative Finance ISA or another Stocks and Shares ISA.
- It is important that you do not try to make the transfer yourself by withdrawing money from one ISA and paying it to a new manager as the money will lose its ISA status. You should apply to the new manager, who will liaise with the existing manager to make the transfer.
From April 2015, it has been possible for the spouse or civil partner of an ISA holder who died after 3rd December 2014 to “inherit” the ISA of their deceased partner by receiving an additional subscription allowance equal to the value of the deceased’s ISA at the date of death.
- The additional subscription must be paid within 3 years of the date of death or within 180 days of the conclusion of the administration of the estate, if later.
- It does not have to be paid to the same ISA manager.
- If an additional subscription is made it will not count towards the subscription limit for that year and can be paid to the same type of ISA – Stocks and Shares, Cash or Innovative Finance – that is subscribed to in the same year.
- If the deceased held a number of ISAs at the time of death, the spouse effectively receives an additional allowance in respect of each ISA.
- The surviving partner does not necessarily need to inherit the assets held within the ISA but, if they do, they can arrange for the assets to be transferred to them in their own ISA account but this is only available with the same ISA manager. This is known as an in specie subscription.
- Meteor is able to receive additional subscriptions in respect of an ISA it manages or which was held with another ISA manager at the date of death and is also able to arrange in specie subscriptions.
Before April 2016, if you withdrew money from an ISA, the money could not be reinvested in an ISA without it counting towards the annual subscription limit.
- Flexible ISAs allow you to withdraw money and replace it later in the same tax year.
- Some managers have changed their terms and conditions to allow existing ISAs to be flexible. Double check with your ISA manager before making a withdrawal.
- Generally, structured products do not lend themselves to withdrawals being made, so Meteor does not currently offer Flexible ISAs.
Help to Buy ISAs
Introduced in 2015, Help to Buy ISAs are available from banks and building societies and are a form of Cash ISA to help savers towards buying a first home.
- You can save up to £1,200 in the first month and up to £200 per month thereafter but cannot “catch up” for any months in the year that you pay less than £200 in to the ISA.
- When the first time buyer is ready to buy a home their solicitor/conveyancer can claim a 25% bonus from the Government if the savings are £1,600 or more (including any interest). The maximum bonus is £3,000 which is payable if savings are £12,000 or more.
- Savers subscribing to a Help to Buy ISA cannot subscribe to another Cash ISA in the same tax year but can use the remainder of their annual allowance to invest in one or both of the other two types of ISA.
- Savers may only have one Help to Buy ISA i.e. subscriptions cannot be made to one in one year and a different one in the next (unless it has been transferred).
- Help to Buy ISAs will no longer be available for new savers from November 2019 but existing Help to Buy ISAs can be retained after that. Bonuses must be claimed before December 2030
- There are limits on the price of the property that may be purchased and it must be mortgaged.
Introduced in April 2017, a Lifetime ISA can be a Cash, Stocks and Shares or Innovative Finance ISA available to those aged between 16 and 39.
- £4,000 can be subscribed in a tax year.
- The remainder of the annual allowance can be invested in any combination of the other two types of ISA.
- After the end of the tax year, the Government will pay a bonus of 25% of the amount invested in that year direct to the ISA manager.
- Bonuses will not be paid once the ISA holder passes age 50, although it is not yet clear if they would be prevented from making further subscriptions.
- Accumulated savings, bonuses and the interest or investment return earned can be withdrawn before age 60 to help buy a first home.
- After reaching 60, the accumulated funds can be withdrawn and used for any purpose.
- If money is withdrawn before age 60 and not used to fund a house purchase, the bonuses must be returned to the Government with any interest or investment return earned by the bonuses and a 5% charge.
You are only able to put money into an ISA if you are resident in the UK for tax purposes.
- If you move abroad you cannot continue to contribute to an ISA
- However, you can retain existing ISAs. If you return, you can start putting money in again (subject to the normal annual limits).
- Crown employees serving overseas (typically members of the armed forces and diplomats), or people married to or in a civil partnership with a Crown employee serving overseas, can open and subscribe to an ISA in the usual way.