ISA allowances can vary from account to account, with Lifetime ISAs having a limit of £4,000 a year and Junior ISAs having a £9,000 limit for example. The maximum that can be saved overall into ISAs in the current tax year is £20,000.
ISA allowances vary depending on the account being saved into but generally, there are four main types of ISA. Savers can put their money into cash, stocks and shares, innovative finance and lifetime ISAs (either individually or split across the various options.)
ISA allowance rules are strict and if a saver accidentally goes above the limits, HMRC will get involved and start “repairing” processes which will involve reclaiming the money.
However, if a saver has a spouse or civil partner who has passed away, they may be able to inherit some or all of their allowance.
If a person’s spouse or civil partner died on or after December 3 2014, they’ll receive an additional ISA allowance equal to the value of their ISA savings at the time of their death.
This means that when the person dies, their spouse or civil partner can have their ISA transferred to them, while still being held in the ISA wrapper for the rest of their lifetime.
If said ISA is a cash account, the receiving saver will be able to exercise a lot of freedom over how the funds are managed.
Cash ISAs can be transferred from provider to provider with few limitations.
Transfers will likely occur when a saver finds a better interest rate elsewhere but certain actions must be taken.
The current provider of the ISA account must let the saver transfer elsewhere if they wish to do so but the saver must ask the new provider to organise the transfer in order to maintain the tax-free status of the savings.
This is important to note as some providers may not accept ISA transfers at all.
This should be checked on before any saver attempts to switch.
Additionally, some providers may charge a penalty for transferring away from their accounts.
These fees and charges should be checked on to make sure that the transfer is still worthwhile.
Cash ISAs can include monetary savings but they may also be able to hold some NS&I products.
Other types of ISAs will allow the saver to hold different kinds of financial products.
Stocks and shares ISAs can include shares in companies, unit trusts and investment funds, corporate bonds and government bonds.
Lifetime ISAs can include either cash or stocks and shares.
Innovative finance ISAs can hold unique financial products.
- peer-to-peer loans – loans that you give to other people or businesses without using a bank
- ‘crowdfunding debentures’ – investing in a business by buying its debt
Transfer rules can be more limited for innovative finance ISAs however.
A saver cannot transfer any peer-to-peer loans they’ve already made or crowdfunding debentures they already hold into an innovative finance ISA.