Frequently Asked Questions

Contents

Individual Savings Accounts (ISAs)

Q. What is an ISA?

A. An ISA is a type of savings account. Basically, if you save in an ISA you are entitled to keep all that you receive from that investment and not pay any tax on it. This is not the case with, for example, an ordinary bank or building society account unless you are a non-taxpayer.

ISAs began on 6 April 1999 and will be around for the foreseeable future. You can start with small amounts and save up to £11,520 in the tax year 2013-14. A tax year runs from 6 April to 5 April in the following year.

You can put money in and take it out whenever you want and you do not even have to tell your HM Revenue & Customs (HMRC) office that you have an ISA.

The ISA scheme provides different ways of saving to meet people's different needs. You can plan for the short term, or put your money away for much longer. For more detailed information please see 'What are the different sorts of ISA?'

Q. What are the different types of ISA?

A. There are two types of ISA: cash ISAs and stocks and shares ISAs. In each tax year you can put money into one of each.

Cash ISAs may be suitable for short-term savings, so that you can get at your money easily.

Stocks and shares ISAs may be appropriate if you can afford to leave your money untouched for longer than, say, five years. However, your investment may go down in value as well as up and there are no guarantees that you will make a profit.

For information on the amounts you can put into each type of ISA in a tax year, please see 'How much can I put into ISAs?'

Q. Where can I get an ISA?

A. You can get an ISA by going to an ISA manager. These include banks, building societies, National Savings and Investments, some supermarkets and retailers, friendly societies, insurance companies, unit and investment trust companies, financial advisers, fund supermarkets and stockbrokers. Your ISA manager will look after your account for you.

ISA managers will give you details of the ISAs they offer and may provide advice about which one would be right for you. (Not every ISA manager will offer both types of ISA.) Alternatively, you could go to an independent financial adviser for help in choosing the best option. The Financial Services Authority's booklet 'The FSA guide to financial advice' gives more information. You can get it by calling the FSA Consumer Helpline on Tel 0845 606 1234 or from the FSA website.

Simply apply to the ISA manager of your choice. You could visit a branch, or write to them. Some companies allow you just to telephone, fax or email.

Please see information about how to choose an ISA manager

Q. Can I have an ISA?

A. To open an adult ISA you have to be aged 16 or over if the ISA is a cash ISA or 18 or over if the ISA is a stocks and shares ISA. You also have to be resident in the UK for tax purposes (ask your tax office if you are in any doubt about this).

Please see information about ISAs for those aged under 18 and the options available when you reach 18.

You also have to be resident in the UK for tax purposes (ask your tax office if you are in any doubt about this), or a Crown employee, such as a diplomat or a member of the armed forces, who is working overseas and paid by the Government. The spouse, or civil partner, of one of these people can also open an ISA.

Please see information about moving abroad.

You cannot hold an ISA jointly with, or on behalf of, anyone else.

Q. How do I choose an ISA manager?

A. Things to bear in mind

Does the ISA manager offer the kind of ISA you want?

Managers may offer cash ISAs and stocks and shares ISAs , or only one of these. Some managers may offer ISAs that can include only that company's products. Others may offer a choice of their own and other companies' products. Or they may offer 'self-select' ISAs, where you choose from a wide range of shares and securities the ones you want to hold in your ISA.

Life insurance can be held in an ISA. Normally it will be part of a stocks and shares ISA, but some policies can be held in a cash ISA. So, if you want to invest in a life insurance product and another product in the same ISA you will need to find a manager who can offer both elements in the appropriate type of ISA.

What are the charges?

A. Make sure you know whether the ISA manager will charge for running your ISA, including any charges for withdrawals and transfers.

All ISA managers must be approved by HMRC and authorised by the Financial Services Authority (FSA), but neither they nor any other government department have approved any ISAs.

Approval does not guarantee an ISA manager's performance, or that the ISA investments will produce a satisfactory return. Please see the list of approved ISA managers (PDF 84K).

Switching from one ISA manager to another

You can transfer your ISA to another ISA manager whenever you want. You do this by asking the new ISA manager to arrange the transfer. Your existing ISA manager cannot stop you transferring, but they may make you pay a charge, or insist that you sell any existing ISA investments and transfer cash (this will be specified in the ISA manager's terms and conditions). You may want to consider this before transferring your ISA.

Your ISA must be transferred directly between the two managers. You cannot transfer your ISA by closing it and opening a new ISA with the new ISA manager.

Subscriptions to a stocks and shares ISA can only be transferred to another stocks and shares ISA. However, subscriptions to a cash ISA can be transferred to another cash ISA, or to a stocks and shares ISA.

A particular ISA may only allow certain types of savings or investments. For example, managers offer ISAs that can include only that company's products. And not all managers allow life insurance products to be held in their ISAs. If you are not sure what type of savings or investments you hold you should ask your ISA manager. If you want to include savings and investments that are not available for your ISA, you may have to transfer to another manager.

If you want to transfer the money you have put into your ISA in the current tax year, you must transfer all of it. (For more information about switching money you have put into a cash ISA in the current tax year to a stocks and shares ISA see 'I have transferred current year payments to my cash ISA to a stocks and shares ISA, can I make any further payments to a cash ISA in this tax year?)

You can transfer all of the money you put into your ISA in earlier years or only some of it, if you wish. However, some managers may not allow you to transfer part of your ISA (this will be in the terms and conditions). Your existing ISA manager will be able to tell you how much you can transfer.

Q. I have transferred current year payments to my cash ISA to a stocks and shares ISA, can I make any further payments to a cash ISA in this tax year?

A.Yes - provided you haven't already used up your annual ISA investment allowance (£11,520 in the tax year 2013-14).

When you transfer current year payments to your cash ISA to a stocks and shares ISA it is as if that cash ISA had never existed. Any money you saved up to the date of transfer will be treated as if you had invested that money directly in the stocks and shares ISA.

For example, if you had put £2,000 in a cash ISA and then transferred it to a stocks and shares ISA you would be able to make further payments totalling £9,520 in that tax year. You could either put all of the £9,520 in the stocks and shares ISA or you could put up to £5,760 in a cash ISA (with the same or a different ISA manager) and the remainder of the £9,520 in the stocks and shares ISA.

Q. How many ISAs can I have?

A. There are limits on the number of ISA accounts you can subscribe to each tax year. You can only put money into one cash ISA and one stocks and shares ISA.

But in different years, you could choose to save with different managers. There are no limits on the number of different ISAs you can hold over time.

Q. How much can I put into ISAs?

A. In the tax year 2013-14, which ends on 5 April 2014, you can put in up to £11,520 into ISAs.

Subject to this overall limit, you can put up to £5,760 in a cash ISA and the remainder of the £11,520 into a stocks and shares ISA with either the same or another provider.

So, for example, you could put

  • £5,760 into a cash ISA and £5,760 into a stocks
  • £3,000 into a cash ISA and £8,520 into a stocks and shares ISA
  • nothing to a cash ISA and £11,520 to a stocks and shares ISA

Q. What are the tax benefits of an ISA?

A. You pay no tax on any of the income you receive from your ISA savings and investments. This includes dividends, interest and bonuses.

You pay no tax on capital gains arising on your ISA investments (losses on ISA investments cannot be allowed for Capital Gains Tax purposes against capital gains outside your ISA).

The insurer does not have to pay tax on income and capital gains on investments used to back your ISA life insurance policies. You do not have to pay any tax when the policy pays out.

You can take your money out at any time without losing tax relief.

You do not have to declare income and capital gains from ISA savings and investments or even tell your tax office that you have an ISA.

Q. I am under 18 - can I have an ISA?

A. If you are aged 15 or under, you cannot have an adult ISA.

If you are aged 16 or 17, you can have an adult cash ISA. The subscription limits are the same as for savers who are over 18 (up to £5,760 in the tax year 2013-14).

Please see information about money given by parents.

Once you become 18 you can also apply to open a stocks and shares ISA. You will have to complete a new application in the same way as any other investor.

There are separate rules for Junior ISAs Junior Individual Savings Accounts (ISA) - GOV.UK

Q. Can I put money into an ISA for my child?

A. There are separate rules for Junior ISAs Junior Individual Savings Accounts (ISA) - GOV.UK

Children aged 15 or under cannot have an adult ISA.

Children aged 16 or 17 can have an adult cash ISA. The subscription limits are the same as for savers who are over 18 (up to £5,760 in the tax year 2013-14).

ISAs for 16 and 17 year-olds are primarily for those in full or part-time employment, including those still at school with, for example, Saturday jobs. But some young people will also use adult ISAs to save money given to them by their parents.

If you give your child money to invest in an adult ISA account, and the total investment income arising on all gifts from you, not just in adult ISAs, exceeds £100 in any tax year, all the income arising will be treated as part of your income for that tax year for Income Tax purposes. You should report that income to your Tax Office.

This rule does not prevent you from giving your child money to invest in an adult ISA - you just have to take care not to give your children too much. The £100 income limit for each child applies to each parent, not to both taken together.

Q. What happens if I die?

A. Your ISA will end on the date of your death. There will be no tax to pay on income or capital gains up to that date, but your personal representatives will have to account for tax on any income or gains arising after your death. The ISA manager will either sell the investments and pay the proceeds to your personal representatives (or a beneficiary of your estate), or transfer the investments directly into their hands. The terms and conditions of the ISA may specify which it will be.

An ISA life insurance policy will pay out on your death. Your personal representatives will have to claim the death benefit. There will be no tax to pay on income or capital gains that arise before the insurer accepts the claim. However, your personal representatives will be taxed on any interest that is paid if there is then a delay in paying out the claim. The insurer will deduct tax at the lower rate before paying over the interest.

ISA investments form part of your estate for Inheritance Tax purposes.

Q. What happens if I go abroad?

A. You can only open an ISA if you are resident in the UK for tax purposes (ask your Tax Office if you are in any doubt about this).

Crown employees, such as diplomats or members of the armed forces, who are working overseas and paid by the government are eligible to open an ISA. Their spouses or civil partners can also open an ISA.

If you start an ISA in the UK and then go abroad, you cannot continue putting money into the ISA (unless you are a Crown employee working overseas or the spouse or civil partner of a Crown employee working overseas). However, you can keep your ISA and you will still get tax relief on investments held in the ISA. When you return, you can start putting money in again (subject to the normal annual limits).

Q. What if I pay into too many ISAs?

A. If, by mistake, you put too much money into your ISAs (more than £11,520 in the tax year 2013-14, of which up to £5,760 can be put into one cash ISA), the excess payments are invalid, and you are not entitled to any tax relief on investments purchased with the excess payments.

You should not try to correct this mistake yourself. Where appropriate, HMRC will contact you after the end of the year and tell you what action is necessary.

Q. What if I pay too much money into my ISAs?

A. If, by mistake, you put too much money into your ISAs (more than £11,280 in the tax year 2012-13, of which up to £5,640 can be put into one cash ISA), the excess payments are invalid, and you are not entitled to any tax relief on investments purchased with the excess payments.

You should not try to correct this mistake yourself. Where appropriate, HMRC will contact you after the end of the year and tell you what action is necessary.

Q. What if I want to take my money out?

A. You can take your money out at any time, without losing any tax benefits you have already built up. However, some ISAs may run for a fixed period or require notice of withdrawal and you may lose some interest or a bonus if you withdraw early. In some cases, there may also be a penalty if you surrender an ISA life insurance policy early. With stocks and shares or life insurance, you may not get back all the money you put in, particularly if you withdraw during the early years of an investment.

If you take money out, any that you put back later will count against your ISA annual subscription limit in the year that you re-invest your money.

Example

Denise opens a cash ISA with £3,500 in May 2013. A few weeks later she withdraws £3,000. Later in the same year, Denise decides to replace the money by putting new funds into the account. However, she can only replace £2,260. This is because the annual subscription limit for a cash ISA account is £5,760 in the tax year 2013-14, and Denise already put in £3,500 when she first opened the account.

Q. What happens if I change my mind?

A. Some ISA managers will offer ISA products that give you a 'cooling off' or cancellation period (usually 7 or 14 days), in which you can change your mind about buying. (If they do, this will be specified in their ISA terms and conditions.)

If you change your mind and cancel the ISA within the period set out by the ISA manager, the payment made will not count as a subscription into an ISA in that tax year and you will be free to put money into an alternative ISA in the that tax year (with the same or a different manager).

If you change your mind after the end of that period (or the manager does not offer a cancellation or cooling off period), you cannot 'unwind' the transaction by closing the ISA. The payment made will still count as a subscription into an ISA and you may not put money into another ISA of the same type in that tax year. However, you could transfer the ISA to another ISA manager - see Transferring your ISA.

Q. Can I put shares from my employee share scheme into my ISA?

A. You can transfer any shares you get from

  • an HMRC approved SAYE share option scheme run by your employer (that is, a savings related share option - 'Sharesave' (or profit sharing scheme)
  • a Share Incentive Plan

into a stocks and shares component of an ISA without having to pay Capital Gains Tax - provided your ISA manager agrees to take them. The value of the shares at the date of transfer counts towards the annual limit.

This means you can transfer up to £11,520 worth of shares in the tax year 2013-14 (assuming that you make no other subscriptions to ISAs, in those years).

You must transfer the shares within 90 days from the day they cease to be subject to the Plan, or (for approved SAYE share option schemes) 90 days of the exercise of option date. Your employer should be able to tell you more.

Q. Can I put windfall or inherited shares in my ISA?

A. No. You can only transfer shares you own into an ISA if they have come from an employee share scheme. Otherwise, the ISA manager must purchase shares on the open market.

The situation is the same if you have shares that you have inherited. You are not able to transfer them into an ISA.

Q. Can I use an ISA to back a mortgage?

A. You can use the proceeds from ISA investments for any purpose, but you should discuss the implications with your financial adviser or mortgage lender.

Q. Can I get reports and accounts of the companies in my stocks and shares ISA?

A. Your ISA manager can arrange for you to receive reports and accounts, although there may be a charge. You may also be able to attend and vote at the annual meeting of companies in which your ISA invests.

Q. What can cash ISAs include?

A. Cash ISAs can include:

  • cash deposited in bank and building society accounts
  • National Savings and Investments products that are specially designed for ISAs (but not other National Savings and Investments products such as the Investment Account, Savings Certificates or Pensioners' Guaranteed Income Bonds)
  • alternative Finance arrangements, such as Shari'a compliant products
  • shares in companies and collective investment schemes that fail to meet the qualifying conditions for stocks and shares ISAs
  • life insurance policies that fail to meet the qualifying conditions for the stocks and shares ISAs
  • the stakeholder cash product
  • stakeholder medium-term products that fail to meet the qualifying conditions for stocks and shares ISAs

Q. What can the stocks and shares ISAs include?

A. Stocks and shares ISAs can include:

  • shares and corporate bonds issued by companies officially listed on a recognised stock exchange anywhere in the world
  • gilt edged securities ('gilts'), issued by the UK government, similar securities issued by governments of other countries in the European Economic Area and 'strips' of all these securities
  • units or shares in funds authorised by the Financial Services Authority (unit trusts or Open Ended Investment Companies (OEICs))
  • units or shares in non-UCITS (Undertakings of Collective Investment in Transferable Securities) retail schemes authorised by the FSA for sale to retail investors in the UK
  • shares and securities in investment trusts
  • units or shares in UCITS funds based elsewhere in the European Union (these are similar to unit trusts and OEICs authorised by the FSA)
  • any shares which have been transferred from an HMRC approved SAYE share option scheme or Share Incentive Plan (see Can I put shares from my employee share scheme into my ISA?)
  • life insurance policies
  • stakeholder medium-term products

Holding cash in the stocks and shares component

Cash may only be held in a stocks and shares ISA to invest in qualifying investments (see What can stocks and shares ISAs include?). This includes cash subscriptions, interest and dividends, and proceeds from disposals of qualifying investments that have not yet been reinvested.

The ISA manager may pay interest on this cash while it is held in the account. There is no Income Tax to pay on this interest, but the manager by law must deduct a flat rate 20 per cent charge before crediting it to the account. You do not have to declare this interest on a tax return.

Q. What types of life insurance can be included in an ISA?

A. An ISA can include life insurance policies that are

  • 'Unit linked' or 'investment linked' policies. This is like a 'pooled' investment such as a unit trust
  • 'With profits' policies. This is a more traditional type of life insurance policy where you participate in the profits the insurer makes from investing your premiums through 'bonuses' which the insurer declares, usually once a year.

Only certain life insurance policies on the saver's own life, which are specially designed for ISAs can be included in the ISA. These may be the ISA manager's own policies, or the ISA manager may offer a range of policies from different insurers.

ISA policies must meet a number of conditions to qualify. Managers offering life insurance will be able to give you details of the policies.

Q. Which type of ISA does my policy qualify for?

A. It depends on when the policy was taken out and the nature of the policy:

  • if you took your policy out before 6 April 2004, it is a qualifying investment for the stocks and shares ISA
  • if you took your policy out on or after 6 April 2004, it will qualify for the stocks and shares ISA unless it guarantees to return 95 per cent or more of the money you initially invested within five years of the date of you made the investment. If it does contain such a guarantee, it will qualify for the cash ISA

Q. What was a PEP (Personal Equity Plan)?

A. A PEP was a type of savings account and was similar to a stocks and shares ISA.

The last date on which a PEP could be opened was 5 April 1999. PEPs in existence at that date could continue, but no further subscriptions could be made to them.

The rules for PEPs changed on 6 April 2001 to bring them more in line with the rules for stocks and shares ISAs. And on 6 April 2008 all remaining PEPs became stocks and shares ISAs.

Q. What if I have a complaint?

A. The first step is to take it up with your ISA or PEP manager. They will have a complaints procedure, which should be able to help you. If you are not happy with the answer you get, you can take the matter up with the Financial Ombudsman Service.

The Ombudsman Service aims to resolve individual disputes between consumers and financial firms. It is free for consumers and is an informal alternative to the courts. You can contact the Ombudsman Service by phone on Tel 0845 080 1800 (calls are charged at local rates) or on the Ombudsman Service website.

Further help and advice

You can also find further information about ISAs the GOV.UK website (Opens new window). It gives basic information about types of ISA and how much can be saved each tax year.

If you have any general questions about the tax rules for ISAs and PEPs, you can call the ISA Helpline.

HMRC can provide you with information about ISAs, but we cannot advise you on whether you should open an ISA, or about particular ISA products. An authorised financial adviser, or the ISA manager concerned, can help you with individual advice.

The FSA regulates financial services and protects consumers. The FSA can tell you if a firm is authorised, and can help you if you have a complaint and are unsure whom to contact. However, it cannot recommend firms or advisers, or tell you whether a particular investment is right for you.

The FSA also has a wide range of user-friendly booklets and factsheets. These are available from the FSA Consumer Helpline on Tel 0845 606 1234 (calls are charged at local rates) or from the FSA website.

The FSA website contains ISA Comparative Tables. These let you compare stocks and shares ISAs based on unit trusts and open-ended investment companies from different ISA managers.