Guide to ISAs
An ISA (Individual Savings Account) lets you save and invest without paying income tax on the interest you earn.
This makes it a tax-efficient way to save or invest. You can put up to £20,000 in an ISA in the current tax year. Your £20,000 allowance can be spread across a range of ISAs but keep in mind; you can only make contributions into one cash ISA in a tax year. This includes Help to Buy: ISAs and cash ISAs held outside Bank of Scotland.
Bank of Scotland offers a flexible range of ISAs:
- Cash ISAs where you either have:
a) easy access to your money with no charge for withdrawals. The interest rate is variable, so it could go up and down.
b) a fixed rate of interest but no withdrawals allowed. You can close a fixed account early or transfer your money to another ISA, but you will be charged the equivalent of 180 days’ tax-free interest.
- The Help to Buy: ISA is a cash ISA for first time buyers saving for their first home. First-time buyers can save up to £200 a month in a Help to Buy: ISA. In addition, the UK government will pay a 25% bonus on closing balances of £1,600 to £12,000. Please note, Help to Buy: ISA is no longer available for new customers from 1 December 2019. If you are an existing Help to Buy: ISA customer you can still claim the Government bonus or transfer your Help to Buy: ISA to us from elsewhere.
- 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 £4,368 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.
- Lifetime ISAs were introduced by the Government on 6 April 2017. They allow you to save up to the lifetime ISA allowance each tax year and receive a government bonus of 25% of what you have saved. You can use some or all of the money to buy your first home, or keep it until you're 60 - it's up to you. Bank of Scotland doesn't offer this ISA however you are able to transfer in from and out to a lifetime ISA subject to product rules.
To get the best 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 current tax year is £20,000. You can choose to use your ISA allowance in a cash ISA, a stocks and shares ISA, an innovative finance ISA, a lifetime ISA (depending on your age and circumstance and up to the lifetime ISA limit) or any combination of the four as long as you don't exceed the annual allowance. Withdrawn funds can be replaced within the same tax year under the Flexible ISA rules, providing you don’t exceed the overall limit of £20,000 by the end of the tax year.
Keep in mind; you can only open and pay money into one cash ISA in each tax year. This includes Help to Buy: ISAs and any cash ISAs held outside Bank of Scotland.
Here are some examples of how it could work:
|
Cash ISA |
Stocks and Shares ISA |
Total ISA Allowance |
|---|---|---|
Cash ISA£0 |
Stocks and Shares ISA£20,000 |
Total ISA Allowance£20,000 |
Cash ISA£10,000 |
Stocks and Shares ISA£10,000 |
Total ISA Allowance£20,000 |
Cash ISA£20,000 |
Stocks and Shares ISA£0 |
Total ISA Allowance£20,000 |
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 £10,000 that you could pay in to reach your maximum allowance of £20,000.
- 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 £10,000 of your allowance remaining for this tax year.
- The Help to Buy: ISA allowance is lower than the £20,000 cash ISA allowance, as you can only save up to £200 per calendar month. Any remaining allowance from a Help to Buy: ISA can be saved in a stocks and shares ISA and/or a lifetime ISA (up to the lifetime ISA limit) 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.
Tax treatment depends on your individual circumstances and may change.