Guide to ISAs
ISAs are savings and investment products where you don’t pay income tax on the interest you earn (or on the increase in value of your investment).
Bank of Scotland offer three types of ISA:
- Cash ISAs where you either have
a) easy access with no charge for withdrawals but the interest rate is variable, so it could go up and down
b) fixed with no withdrawals allowed but can be closed early or transferred to another ISA subject to loss of interest
- Stocks and Shares ISAs are a tax-efficient way of investing if you’re looking to put your money away for the medium to long-term (at least 5 to 10 years). Unlike cash ISAs, the value of your investment can go down as well as up and you may get back less than you originally invested.
- Junior ISAs are a tax-efficient way to save for your child and can be accessed by the child when they reach 18 years of age. The annual Junior ISA allowance for this tax year is £4,080 and can be invested in a Junior Cash ISA, a Junior Stocks and Shares ISA, or a combination of both, providing you don’t exceed the annual limit.
- Innovative Finance ISAs are not offered by Bank of Scotland, but are a tax-efficient way of participating in peer to peer lending using your savings without paying any personal tax on the income received. The value of your investment can go down as well as up and you may get back less than you originally invested.
First time buyers can choose to save up to £200 a month in a Help to Buy: ISA instead.
To get the best use out of your ISA you should use your maximum annual allowance and do this as early as possible during the tax year – which runs from 6th April one year to 5th April the next year.
What are the ISA rules and limits?
The total amount you can save in ISAs in the 2016/17 tax year is £15,240. You can choose to invest up to your full allowance into a cash ISA, a stocks and shares ISA, an innovative finance ISA or a combination of all three. With certain types of cash ISAs, withdrawn funds can be replaced within the same tax year under the Flexible ISA rules, providing you don’t exceed the overall limit of £15,240 by the end of the tax year.
The Help to Buy ISA allowance is lower than the overall ISA allowance. You can only pay into one cash ISA per tax year, so any remaining allowance can only be invested in a stocks and shares ISA and/or an innovative finance ISA.
Here are some examples of how it could work:
|Cash ISA||Stocks and Shares ISA||Total ISA Allowance|
You can only open and pay money into one cash ISA and/or one stocks & shares ISA and/or one innovative finance ISA each tax year.
How the ISA allowance works
Flexible ISA rules allow you to withdraw and replace funds from certain types of our cash ISAs without affecting your yearly ISA allowance, providing you replace funds in the same tax year you withdraw them, for example:
- If you pay £10,000 into your cash ISA, you would then have another £5,240 that you could pay in to reach your maximum allowance of £15,240.
- If you took out £2,000, leaving £8,000 in your ISA, you could put £2,000 back in to your account and still have £5,240 of your allowance remaining for this tax year.
- The Help to Buy: ISA allowance is lower than the £15,240 cash ISA allowance, as you can only make an initial deposit of £1,000 plus £200 per calendar month. Any remaining ISA allowance can only be invested into a stocks and shares ISA and/or an innovative finance ISA.
You can't carry any unused amount over to a new tax year – the ISA allowance simply resets back to the annual allowance again on 6th April.