What is an ISA account?
An Individual Savings Account, commonly known as an ISA, is a UK tax-free savings or investment account that allows the holder to keep any accrued interest.
ISA account holders are exempt from paying personal income tax or capital gains tax up to a specified annual ISA allowance limit, unlike other savings account holders.
Where have you heard about ISA accounts?
ISAs are popular in the UK among investors and personal savers alike. They are offered by all major banks and building societies
Recently the UK government launched the Help to Buy ISA – a scheme developed to help first-time buyers get onto the property ladder. For every £200 paid into a Help to Buy ISA, the government adds £50, boosting savings by 25%, up to a maximum £3000 government bonus.
What you need to know about ISA accounts.
An ISA can be held in cash, stocks, shares or peer-to-peer investments (small business or personal loans provided without going through a bank). These were first introduced in 1999 and are provided by banks, building societies and credit unions.
The three main types of ISA are:
- cash ISAs – no tax paid on interest
- stocks and shares ISAs – no tax paid on capital gains or income from investment
- innovative finance ISAs – no tax paid on capital gains or income from investment
To open an ISA, you must be a UK resident over the age of 16 (for a cash ISA or over 18 for a stocks and shares or innovative finance ISA). Junior ISAs are available for children under the age of 18.
There are various rules that go with the different types of ISA – these include restrictions on paying in and withdrawing money. The limit to how much can be paid in varies year on year but has been rising steadily since the account’s creation.