What is an ISA 2023/2024?

ISA is short for individual savings account, a type of account provided by banks, building societies, or other institutions where you can save up to £20,000 annually without incurring any taxes. ISAs allow you to earn interest without being taxed on it, and any withdrawals made from an ISA are also tax-free.

What are the different types of ISAs

Cash ISA - A type of ISA designed for saving cash. One of its main advantages is that the Financial Services Compensation Scheme protects up to £85,000 of your money in case your ISA provider goes out of business.

Stocks & Shares ISA - An investment account that allows you to invest up to £20,000 for the tax year 2023/24. This account enables you to hold shares and funds without being taxed on your returns, whether they come from capital growth or dividends. Additionally, you can keep cash in this account. However, it's important to note that a Stocks & Shares ISA carries the standard risks associated with investing in the stock market, including the possibility of losing money.

When can I access the money?

An investment ISA should typically be approached with a long-term investment perspective, spanning at least three to five years. While your funds are not completely inaccessible, they are not as readily available as they would be in a cash savings account, as selling investments is required to retrieve your money. Rushing to withdraw your cash could result in selling at a suboptimal price. Therefore, it is advisable not to treat an investment ISA as a quick source of cash, but rather to remain invested for an extended period whenever possible.

Who can inherit an ISA?

A spouse or civil partner can inherit their partner’s ISA allowance when they die, this will be either the value of the ISA when they died, or the value of their ISA when it is closed. This means ISAs keep their tax-efficient status even when the saver dies, taking into account that couples may have saved together from joint money over their lifetimes. The rules don’t apply to cohabiting couples who are unmarried or not civil partnered, however. You can leave your ISA to someone else, but they would have to pay inheritance tax on it if your total estate is worth more than £325,000.