Wrappers_TaxAgility Accountants LondonMost of us have heard of an ISA (Individual Savings Account) even if we’ve never opened one, but what exactly is an ISA, and why would you want to invest in one?

Simply put, an ISA is something of a tax wrapper that you can place around a particular account in order to shelter the contents from further income tax or capital gains tax. Because the contents of your ISA won’t be subject to taxation within the ISA itself, the government sets limits on how much you can place into your ISA over a twelve-month period.

As of 1 July 2014, the tax-free ISA limit has increased to £15,000 and there is no restriction on how you invest this; either as cash or shares or a combination of the two – you can decide the amount to be invested in each (up to a limit of £15,000 a year).

So, What is an ISA?

An ISA is a simple way to help your savings grow each year – tax free!  ISAs are easy to get started with as there are only two types; a cash ISA, and an investment ISA (also called a stocks and shares ISA).  You can choose to invest in either cash or stocks & shares, or a combination of the two.

Cash ISA

A cash ISA is exactly what it says on the tin; an account in which you can place a certain amount of cash each year; as of 1 July this has now been increased to a total of up to £15,000 a year. Provided you stick to your yearly limit, your cash ISA will be protected from income tax payments.

Investment ISA

An investment ISA is much more interesting, and is the route you’ll want to go down if you’re looking for some significant returns on your investment. Slightly more complicated than its cash equivalent, in an investment ISA you may place:

  • Shares and Corporate Bonds: Not all shares qualify to be placed into an investment ISA, but in general if they’re available on an exchange (such as the London or New York Stock Exchanges) there’s a good chance they’re allowable.
  • Gilt Edged Securities (GILTS): These must be issued by the UK government or represent similar securities issued by governments of other countries in the European Economic Area.
  • Numerous Authorised Funds: HMRC provide a full list of what an investment ISA can include, including a number of authorised funds.

What do the New ISA Rules Mean?

The new rule, as of 1 July 2014, allows you to invest up to £15,000 per year and gives more flexibility over how you choose to invest your savings.

Your yearly investment limit into an ISA falls in line with the tax year; starting on 6 April 2014 and ending on 5 April 2015. For the current tax year you may now place up to £15,000 into ISAs as follows:

  • £15,000 to a cash ISA only
  • £15,000 to a stocks & shares ISA only
  • Or a combination of investments into both cash and stocks & shares ISAs (up to £15,000)

As mentioned above, you can invest the total £15,000 with one provider, or split the investment across multiple providers.

Plus you are now also able to transfer money from a stocks & shares ISA to a cash ISA for the first time.

Important ISA Considerations

The right to make use of an ISA is on a year-by-year basis, meaning if you decide to open an ISA on 6 April 2014 (the first day of the tax year), you can only place your current yearly limit into your ISA; you cannot reclaim usage for the year (or indeed, years) you’ve just missed. The same is true if you don’t use your full allowance in one year; you can’t carry it forward to the next.

If you decide to invest in a cash and investment ISA, you may choose a different provider for each if you wish. You may also transfer your ISAs between providers; though many providers won’t make this immediately obvious.

Though the easiest way to fully utilise an ISA is to break down your yearly limit into twelve, thus investing one-twelfth of your yearly limit on a monthly basis, you may also invest a lump sum at any time; so long as you don’t go over the yearly contribution limit.

Finally, married couples retain their individual allowances after marriage.

Make the Most of Your Tax Free ISA Allowance

To speak with a professional to discuss how to get started with ISA investments, or for any other reason, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

To maximise your tax-free ISA allowance for the current year, remember that you need to invest before 5 April 2015.


This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.