Individual Savings Accounts (ISAs) are a well-used form of investing and for good reason.
Therefore, if you’re looking to explore your investment options for ISAs, it can benefit you to know the answers to some common questions surrounding them.
Read on, where we answer the top frequently asked questions (FAQs) about ISAs.
What is an ISA?
An ISA is a specific type of investment account that allows you to grow your savings tax-free. Any money you save in your ISA will be sheltered from tax.
Each tax year, you simply need to invest money into your account up to the ISA allowance to do this.
As of the current tax year 2023/2024, the ISA allowance is £20,000.
Are there different types of ISA?
There are four types of ISA you can invest in. These are – cash ISA, lifetime ISA, innovative finance ISA, and stocks and shares ISA.
You can only open one of each type of ISA each tax year, and your annual ISA allowance applies to the total of all your investments across every ISA type.
How do you open an ISA?
To open an ISA, simply contact your provider, or a modern wealth manager, and you can begin investing for the tax year.
You must be over the age of 16 to open a cash ISA, and over 18 to open any other type of ISA. You must also be a UK resident or a Crown servant – or spouse of one.
How do you withdraw money from your ISA?
You can withdraw money from your ISA at any time in the tax year, without compromising any tax benefits.
When it comes to Lifetime ISAs, there are different rules which apply.
With flexible ISAs, you can withdraw money and put the same amount back in during the same tax year without impacting your allowance.
With non-flexible ISAs, if you withdraw any money during the tax year, this amount remains used up from your allowance and cannot be re-added.
Can you exceed the ISA limit and pay tax on the excess?
Most ISA providers will not allow you to exceed the ISA allowance and simply pay the tax charges.
This is unlike other investment allowances such as the annual pension allowance, which you can exceed if you accept there will be a tax charge applied.
Can you switch ISA providers?
If you have one or several ISAs and would like to transfer this money to a new provider, this can often be done seamlessly.
Simply contact your new provider and they can handle the majority of the process for you, including contacting your existing providers and getting the money transferred over.
If you’re transferring from an ISA you’ve invested in for the current tax year, you must transfer the complete amount. However, if it’s an ISA from previous tax years, you can transfer a portion of the savings if you want.
Also, if you’re transferring cash and assets from a Lifetime ISA before the age of 60, you will be charged a withdrawal fee of 25%.
When it comes to innovative finance ISAs, you’re able to transfer cash to another provider, but other investments may not be transferable.
If you have any unanswered questions surrounding ISAs, or would like to begin investing for yourself, contact your modern wealth manager.
Please note, the value of your investments can go down as well as up.
