Finance Explained – ISAs

September 5, 2017

An ISA is an Individual Savings Account. It is a savings account that you never pay tax on.

There are four types of ISA – cash ISAs, stocks and shares ISAs, innovative finance ISAs, and lifetime ISAs.

A cash ISA is a savings account where the interest is never taxed. A Help to Buy ISA, launched in 2015, are ISAs for first-time buyers to help them get on the property ladder. They are a type of cash ISA.

Stocks and shares ISAs allow you to invest funds, bonds and shares in companies. There is no tax on profits with a stocks and shares ISA, and also no tax on dividend income or interest earned on bonds.

Innovative finance ISAs include peer-to-peer lending, lending to businesses and crowdfunding. Any interest you make on lending money using these ISAs is not taxed.

A lifetime ISA, launched in 2017, allows you to save up to £4000 a year. The state will then add a 25% bonus on top. These can be used for two purposes – first time property buying, and retirement. Those between 18 and 40 can open a lifetime ISA, and keep adding to it until the age of 50. There is a 25% penalty for removing money for reasons other than first time buying or retirement.

Every tax year, you can put money into one of each kind of ISA. There is a maximum limit for money you can put into ISAs in 2017/18 of £20,000.

You can get ISAs from banks, building societies, credit unions, friendly societies, stock brokers, peer-to-peer lending services, crowdfunding companies and other financial institutions.

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