ISAs explained
Think ISAs are a bit complex? And that you have to lock your money away for years and years? This section will help you see how simple it can be to protect your savings from the taxman.
What is an ISA?
ISAs are savings accounts where you don’t pay income tax on the interest you earn (or on the increase in value of your investment).
Halifax 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 charges for withdrawals but a fixed interest rate for a length of time that you choose
- Stocks and Shares ISAs if you're looking to invest for 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. A child can only have one Junior Cash ISA.
What are the ISA rules and limits?
To get the best use out of your ISA you should use your maximum annual allowance (see the example below) and do this as early as possible during the tax year – which runs from 6th April one year to 5th April the next year.
For example: you can save up to a maximum of £5,940 in one cash ISA. The other £5,940 could go into a stocks and shares ISA with the same provider like Halifax, or a different one. Alternatively, invest up to the full £11,880 in just a stocks and shares ISA. It’s up to you.
From 1st July the annual ISA subscription limit will increase to £15,000 as per the Budget announcement on 19th March 2014. You can choose to invest any remaining allowance in a cash ISA, a stocks and shares ISA or a combination of both providing you don't invest more than £15,000 in total during the 2014/15 tax year.
Here are some examples of how it could work: (until 30 June 2014)
Cash ISA
Stocks and Shares ISA
Total ISA Allowance
£2,880
£9,000
£11,880
£4,880
£7,000
£11,880
£5,940 (maximum cash ISA allowance)
£5,940
£11,880
£0
£11,880 (maximum stocks and shares ISA allowance)
£11,880
You can only open and pay money into one cash ISA each tax year.
How the cash ISA allowance works (until 30 June 2014)
There is an annual limit on how much you can put into one ISA in a tax year so if you take money out, you can’t replace it during that tax year. For example:
- You pay in £3,000 you would then have another £2,940 that you could pay in to reach your maximum allowance of £5,940.
- If you took out £1,000, leaving £2,000 in your ISA, you could still only pay in £2,940 giving you a total of £4,940 in tax-free savings for this tax year.
You can't carry any unused amount over to a new tax year - the cash ISA allowance simply resets back to the annual allowance again on 6th April.
