INDIVIDUAL SAVINGS ACCOUNTS Individual savings account (ISA) allows you to save tax-free into a cash savings or investment account. ISA accounts are offered by banks, building societies, insurers, asset managers and National Savings and Investments (NS&I). They’re popular because you don’t pay tax on: • interest earned on cash in an ISA • income or capital gains from investments in an ISA If you complete a tax return, you do not need to declare any ISA interest, income or capital gains on it. However on your death the value of your ISAs will be added to your other assets to work out if Inheritance Tax needs to be paid by your estate (unless the ISAs are invested in Business Relief qualifying investments and held for the minimum 2 year qualifying period). If your spouse or civil partner dies you can inherit their ISA allowance – this is as well as your normal ISA allowance, so in addition you can then add a further tax-free amount up to either: • the value they held in their ISA when they died • the value of their ISA when it’s closed How ISAs work - there are 5 types of (ISA): • Cash ISA - savings in a bank & building society account, some National Savings & Investment products • Stocks and shares ISA – shares in companies, unit trusts & investment funds, corporate bonds & government bonds 05 P R O S P E R I T Y N E W S L E T T E R
• Innovative finance ISA – peer-to peer loans i.e. loans that you give to other people or businesses without using a bank, crowdfunding debentures i.e. investing in a business by buying its debt • Lifetime ISA – cash, stocks and shares • Junior ISA – cash, stocks and shares, until child’s 18th birthday. Putting money into an ISA • Every tax year you can put money into one of each kind of ISA. The tax year runs from 6 April to 5 April. • You can save up to £20,000 in one type of account or split the allowance across some or all of the other types. You can only pay £4,000 into your Lifetime ISA and £9,000 in a Junior ISA in a tax year. • So for example you could save £11,000 in a cash ISA, £2,000 in a stocks and shares ISA, £3,000 in an innovative finance ISA and £4,000 in a Lifetime ISA in one tax year. • You’ll keep your savings on a tax-free basis for as long as you keep the money in your ISA accounts. It’s possible to transfer any non-ISA shares you already own into an ISA - but only if they’re from an employee share scheme. You cannot transfer any peer-to-peer loans you’ve already made or crowdfunding debentures you already hold into an innovative finance ISA.
