ISA Rules Explained

POSTED: 24th June 2015
IN: Personal Guides

If you’re looking to save up a large sum of money over time, or you already have money in a traditional savings account, you may benefit from opening an ISA.

undefinedAn ISA allows you to save up to £15,240 a year while gaining tax-free interest. In this post we’ll go through the various ISA rules so that you can find the best way to make the most of your savings in 2015.


How much can you save in an ISA?

  • Everyone gets a yearly tax-free allowance set by the government, and each year the limit is increased in line with inflation to allow savers to grow their returns on a larger sum of money.
  • The tax-free allowance currently stands at £15,240 for the tax year 6th April 2015 to 5th April 2016, having already increased to £15,000 in July 2014. Prior to this date savers were only able to save up to £5,940 in a Cash ISA, or up to £11,880 in an Investment ISA.
  • You cannot put more than the annual ISA allowance in your ISA each year.  If you don’t use your full allowance, you cannot roll over any remaining entitlement into the next tax year.
  • If you remove the money you have saved in an ISA and invest it in a current account or savings account, the interest you then earn will be taxed providing it is more than the minimum income allowance.
  • Currently, once money has been withdrawn from an ISA, it cannot be replaced. However, according to the 2015 Budget, ISAs will become more flexible in the autumn to enable savers to replace money that has been withdrawn without losing its tax-free status.
  • In order to make use of your yearly ISA allowance you must save or invest by 5th April. Any money added after this point will be included in the next year’s allowance.

Where should you save your money?

There are two main types of ISA:

  • Cash ISA
  • Stocks and Shares ISA

In the past, people were able to invest more money in a Stocks & Shares ISA, more commonly known as Investment ISA than they were able to save in a Cash ISA, but now they can choose to split their money as they choose.

Some people choose to place their full £15,240 allowance in their Cash ISA, others choose to invest the full amount in an Investment ISA. The money does not have to be divided evenly, and more can be placed in one than the other, providing the combined total does not exceed £15,240.

Investment ISAs are often favoured by those willing to harness great returns over a medium to long term. Cash ISAs are often popular with those who want to make short term savings without the risks associated with investments.

There are different types of Cash ISA to choose from. If you want to be able to access your money when you need it, an easy access ISA will allow you to do so. Notice Cash ISAs will also allow you to take money out providing you give notice or you’re prepared to pay a penalty for withdrawals. If, however, you are happy to deposit one lump sum and lock your money away for a particular period of time, a Fixed Rate ISA may be more suitable for you.


What are the tax benefits of Investment ISAs?

You can currently add up to £15,240 in an Investment ISA and you won’t need to pay any Income Tax or Capital Gains Tax on any interest received or profits made.

I want to transfer my account, can I switch provider?

If you already have an ISA but you want to switch provider, you can. However, it’s vital that you don’t simply withdraw the money or try to transfer it yourself. Get in touch with your new provider and they will be able to move the money for you, while also protecting it from tax. You can transfer an ISA opened in the current year, but you’ll need to transfer it all to your new provider, as well as transferring ISAs invested from previous tax years. Previous tax year ISAs can be transferred in full or part. You will need to check with your new provider whether they accept both current and previous year ISAs and their terms & conditions for doing so.  

What are the rules of opening an ISA account?

In order to open a cash ISA account you need to be aged 16, while to open an investment ISA you must be 18 or over. Children are entitled Junior ISAs and are able to save up to £4,080 this tax year. Those aged 16 or 17 are entitled to have both a Junior ISA and a regular ISA at the same time. Of course, in most cases this money will be deposited by the young person’s parents.

How do I withdraw money?

If you want to have regular access to your money, make sure that you check the terms set by your ISA provider before you open your account. Some accounts require you to lock your money away for a fixed period of time, while others allow you to make as many deposits or withdrawals as you like.

What is the Help to Buy ISA?

From Autumn 2015, the government will give first-time buyers a helping hand in growing their deposit savings through the introduction of a Help to Buy ISA. In the March Budget announcement, Chancellor George Osborne unveiled plans to give savers £50 for every £200 they save towards their first home.

Savers will initially be able to open a Help to Buy ISA with a maximum £1,000, before paying in up to £200 each month towards a property. Account holders can deposit up to £12,000 in the account, and will then be rewarded with a £3,000 bonus from the government.

If you decide that the Help to Buy ISA is for you, it’s vital that you don’t open a Cash ISA this April, as you can only open one ISA each tax year.

If you’re looking for tax-free savings without the risks associated with investments, Aldermore may be able to help.  For those who may be unsure about when they might need their savings back a Notice Cash ISA could be ideal. You’ll be able to put money in and take it out again, as long as you give notice. If, however, you have a set amount of money to deposit all in one go, and you don’t mind locking your money away for a fixed period of time, a Fixed Rate ISA could be for you. For more information about the Cash ISAs available to you, please don’t hesitate to get in touch with the team at Aldermore Bank.


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