The Treasury Select committee met yesterday to hear more evidence on the future of the Lifetime ISA.

The committee first met in February and had a range of speakers to discuss the viability of the product, which pays an annual bonus to savers of up to £1,000.

Much is up for discussion, including the extreme solution of abolishing the product altogether.

So what is the Government thinking on this? The committee heard evidence from MP Emma Reynolds, the economic secretary to the Treasury. 

Unfortunately, her comments didn’t provide much information on whether the LISA will be improved upon. 

Reynolds told the committee: “Any changes that could be made to improve that situation would cost money. That money would have to be found from somewhere else.”

What is the Lifetime ISA?

The Lifetime ISA or LISA is designed for people who wish to save a house deposit for their first home purchase. Alternatively, savers can use the LISA as an alternative (or addition) to a pension. 

If the saver doesn’t use it for a house deposit, then the money can’t be withdrawn until they turn 60. 

Savings of up to £4,000 a year get a 25% bonus – up to £1,000. But any withdrawal made that doesn’t include the above reasons incurs a 25% penalty. The problem here is the penalty is made on the whole amount, not just the bonus. This means in effect someone who takes money out gets less back than they put in. 

But although this aspect has drawn many critics, who have called for the penalty to be lowered to 20% – which would negate the losses – Reynolds, told the committee this was a feature not a flaw of the product. 

She told the committee: “Having rules around a penalty if you withdraw are in line with unauthorised withdrawals of a pension. The penalty of withdrawing your pension earlier is much heavier than the 25% in this case.  

“We can’t have a risk-free option of investing for the long-term, but if you take your money out, there is not a charge. We would not have that situation.”

The LISA also presents first-time buyers in areas such as London and the South East with an issue because the cap on property purchase prices is £450,000 – which prevents some savers from using the product in areas where prices are very high. 

Future of the LISA

Brian Byrnes, head of personal finance at finance app Moneybox, spoke exclusively to Mouthy Money yesterday ahead of the next committee. You can hear him explain all about the LISA – its past and its future – in the latest Mouthy Money podcast episode. 

Having given evidence at the committee hearing in February, Byrnes told the podcast that Moneybox anticipated some action from the Government on the LISA in the next Autumn Budget, later this year. 

On the back of the committee hearing, Byrnes added: “Yesterday’s Treasury Select Committee session highlighted the continued debate around the future of the LISA. While it’s encouraging to see it on the agenda, we believe now is the moment to take action. 

“Small, pragmatic changes – such as increasing the property price cap and adjusting the unauthorised withdrawal penalty – would ensure the LISA continues to deliver for first-time buyers in a fast-changing economic landscape. These aren’t radical changes – they’re common-sense updates that would make a great product even better.”

Byrnes also highlights a less-well-understood issue for the LISA – why major legacy banks don’t offer the product.

“It’s also important to clear up a common misconception: banks don’t avoid offering the LISA because of mis-selling concerns,” he says. “The reality is that administering a LISA is significantly more complex than other ISAs due to the need for real-time connections with HMRC. 

“For many larger institutions with legacy tech infrastructure, this operational burden – combined with the £4,000 annual contribution limit and lower average income of LISA savers – makes it commercially challenging. By addressing these barriers, we can unlock greater provider participation and wider access.

Ultimately Byrnes believes the LISA is a good product worth improving. 

“The Lifetime ISA (LISA) has been one of the most impactful financial products introduced in recent years, helping young people across the UK take control of their financial futures – particularly when it comes to buying their first home. Since its launch in 2017, the LISA has empowered a generation to build long-term savings habits, with the confidence that they can work towards both homeownership and long-term financial security.

“At Moneybox, we’ve seen this impact first-hand. Over the past year alone, we’ve recorded a 34% increase in customers opening a LISA. Importantly, 80% of our LISA savers earn £40k or less, demonstrating how vital this support is for those who need it most. These are hardworking individuals striving for financial independence, and the LISA is giving them the boost they need to get on the property ladder.

“While much focus is rightly placed on increasing housing supply, this remains a long-term goal. In the meantime, we urge the Government to invest in near-term, practical solutions that support aspiring first-time buyers today – helping them save, build deposits, and access affordable mortgages.

“We encourage policymakers to build on the solid foundation already in place and future-proof a product that is delivering real, measurable impact for young people nationwide.”

SAVING THE LIFETIME ISA: LISTEN TO THE FULL PODCAST EPISODE

Photo by cottonbro studio

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One of the funniest aspects of Labour’s time in Government so far has been its ability to implement things we think should be Tory policies. 

Scrapping NHS England and slashing welfare hardly feel like core Labour voter issues and the Government has the backbench disquiet to show for it.

But there is another, inherently weirder area that Labour is implementing a Tory policy by stealth – ISAs.

When it came to power, Labour killed the Tory ‘Brit ISA’. It was a rubbish policy poorly thought through. 

So why are they now reintroducing it by stealth?

ISA reform

Ahead of the Spring Statement rumours abounded that Chancellor Rachel Reeves had her sights set on a cut to the annual cash ISA allowance.

Currently everyone over the age of 18 gets £20,000 allowance to use how they wish in an ISA. The exception here is the Lifetime ISA (LISA) which has a limit of just £4,000.

Supposedly, Reeves was looking to cut the cash limit to £4,000 too. This, so the story goes, would encourage investing over cash deposits which would be good for long-term savings growth. 

But while the Government has shied away from anything so specific for now, it has committed to looking at reforming the ISA system. Here’s exactly what it has said:

“The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.”

The interesting bit in this (for me, a money nerd) is the bit that says “support the growth mission”. This sounds specifically coded as an implication that the allowance could be directed at British investments.

Stealth Brit ISA

So are we about to get the Brit ISA by stealth? I’ve heard of stealth taxes but this is next level…

As a reminder: the Brit ISA was supposed to be a specific additional allowance for investing in British assets. It was criticised for being a difficult to implement idea with nothing more than a token impact on markets. 

The truth was that how you classify a British investment/asset is extremely difficult. Scottish Mortgage Trust is a UK-based investment trust and is traded on the UK FTSE. But it invests in loads of foreign companies. It meets the market criterion, but not the spirit of a ‘British Investment’. You can make this case for all sorts of stuff.

Labour, sensibly, ditched the whole thing as a waste of time gimmick. But it now sounds a lot like it might be back on the menu – potentially on even worse terms because the original Brit ISA was at least offering extra allowance (not just sucking up some of the existing one). 

Ask our experts your money questions

Tin foil hat time

If I’m going to put on a tinfoil hat at this point here’s what I’d then say:

Any attempt by the Government to force people to own UK-based assets over other foreign investments is what we like to call ‘financial repression’.

Financial repression was a tool used by Governments after World War Two to make the national debt seem smaller. It did this by forcing people with savings to hold British assets such as bonds. 

Those bonds saw values grow slower than relatively high inflation, which meant the face value of those bonds diminished. All the while the Government was able to increase its tax take in line with inflation. 

It made the debts look smaller and the Government more solvent. 

Here’s the rub: someone has to lose. The losers were the bondholders. The bondholders were FORCED to hold those bonds by the Government with tools such as capital controls that prevented money going abroad (something we now take for granted).

We’re not quite there yet, but compelling investors to buy British through their ISA allowances (when inflation is higher than it should be) is starting to look awfully familiar.

But maybe its just me (and my tin hat). 

Image courtesy of HM Treasury Flickr

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ETF technology has transformed the face of modern investing, making a dizzying array of investments available to anyone in the UK with an ISA, but a bitcoin ETF is still missing. Why?

ETFs have been a gamechanger for investing on a global scale.

Not only do they offer immediate access to bundles of mainstream investments, but they have unlocked a world of niche thematic and other asset classes to anyone interested in owning them, be they ‘institutional’ (think big pension funds or banks) or private investors like you or I.

In the past multitudes of gatekeepers stood in front of such products, commanding fees and generally making the experience more convoluted and expensive.

But now, anyone can log into a mainstream investment platform, open an ISA, and buy gold, uranium, pork futures, liquor trackers, or basically any other kind of investment we think might be a good ‘un.

This is because ETFs are listed on mainstream stock markets. This means when you have an investment ISA on an investment platform that offers those stock markets, for the most part you have unfettered access to this array of products.

LISTEN: Edmund Greaves talks bitcoin and Argentina with Trevor Schrock

But in 2024 there is one glaring omission from this list for British investors – bitcoin.

Unlike almost any other asset which can be held within a tax-sheltered ISA account, bitcoin cannot be owned in a way that doesn’t attract some sort of potential tax implication. The main one of these being capital gains tax (CGT) which is payable when you realise a gain on an investment.

With CGT allowance now shockingly low (having been squeezed to death by income-hungry Chancellors) this is now a significant problem, especially considering bitcoin’s recent dizzying performance.

So why can’t we hold a bitcoin ETF in an ISA?

The ETFs have arrived

The truth is that in other parts of the world, bitcoin is most certainly available in an ETF format. This opens access to millions of investors who wouldn’t otherwise go to the trouble to enter the ecosystem of the cryptoasset.

Investors in the US were given access to such products this year for the first time, and – as Tom Bailey, head of ETF research at Han ETF, my guest on the latest Mouthy Money podcast noted – the EU has also had bitcoin ETFs (or ETCs as he points out they’re actually called) for some time.

So why then no luck for UK investors? Put simply, the UK’s financial watchdog, the FCA, has banned it.

The FCA says it believes there’s too much risk associated with cryptoasset investments, therefore retail investors should not be able to own them. It reconfirmed this view recently.

But the FCA is cutting off its nose to spite its face here. Instead of encouraging investors to hold these assets in ISA accounts on regulated platforms, it has instead decided that we should all just try and find riskier ways to hold the asset.

It is true to say that you can now hold cryptoassets such as bitcoin on major platforms such as Revolut, but this still doesn’t confer tax sheltering because of the lack of an ISA.

It also isn’t going to be the place where everyone ends up – some people are going to end up in offshore places getting scammed, ripped off and otherwise exposed to unnecessary risk that the regulator has imposed through ignorance and sheepishness.

Bitcoin is now simply too big to ignore. It’s high time the FCA reconsiders its ban on bitcoin ETFs for private investors in the UK. To promote sensible investment, protect from unnecessary risk, and to confer equivalent tax benefits of other major asset classes.

Listen to the full podcast episode where host Edmund Greaves digs into the world of ETFs with Tom Bailey, head of ETF research at Han ETF. Tom and Ed discuss everything from gold to energy, uranium, bitcoin and the Royal Mint in the world of ETFs.

All investing carries risk. This article is intended for information purposes only, and should not be construed as financial advice. Always research investments before making decisions and seek professional advice if in doubt.

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Q. When will I be able to start saving into the Great British ISA and can anyone open one? 

A. The introduction of a new British ISA was announced in the 2024 Spring Budget, in a bid to revive the UK’s flagging stock market.

The ‘UK ISA’, as it has been dubbed, will only allow money to be invested in UK stocks and bonds.  

Investors will have an extra £5,000 ISA allowance to invest in UK stocks with the new ISA, on top of the £20,000 they can invest elsewhere. A bigger ISA allowance is definitely welcome, as the maximum allowance has been frozen since 2017.

But it would have been much better if the Government had simply raised the standard stocks and shares ISA allowance rather than introducing a brand-new account.  

The British ISA will be the seventh type of ISA available on the market, so it’s an added layer of complexity investors don’t need. It also sets a worrying precedent of the government dictating where investors can put their money if they want to protect it from tax.  

What happens, for example, when the government wants to encourage more investment in something like private equity, renewable energy, or defence companies? Do we get new ISAs for those too?

Perhaps more concerning is the prospect that instead of increasing the ISA allowance, they may start encroaching on the existing ISA allowance with restrictions on where it could be invested.  

The bottom line is investors should be able to invest where they want, based on their risk profile and where they see the best opportunities.  

The UK ISA adds complexity to running an investment portfolio because it’s another limiting factor to consider.

Fast forward five years and an investor might want to dial down their UK exposure, but the UK ISA restrictions could mean they are left with the choice of either moving investments out of the tax shelter to invest them elsewhere, or abandoning their investment plans in the interests of tax efficiency.  

In practice, it’s also of course already possible to invest in UK stocks within the existing stocks and shares ISA. The high weighting ISA investors already have in UK assets also suggests the UK ISA won’t be successful in creating a seismic shift towards UK shares. ISA savers would have invested in them anyway.  

It’s also only likely to come into play for investors who have maxed out their £20,000 standard allowance and there was around a million of them at the last count. On the heroic assumptions all of them invest £5,000 into a UK ISA, that’s an extra £5 billion or so going into UK stocks each year. It sounds like a lot, but the value of the FTSE All Share is currently £2.3 trillion so the UK ISA won’t touch the sides. 

There’s also a question of timing as it isn’t going to be introduced this April. There’s a consultation on how to implement it, as there are plenty of design challenges to overcome.

The consultation closes in June and given the proximity of a general election and the fact the Labour party is committed to ISA simplification, the UK ISA may never hit the shelves.  

Laith Khalaf started his career in 2001, after studying philosophy at Cambridge University. He’s worked in a variety of roles across pensions and investments, covering both the DIY and the advised sides of the business.

In 2007, he began to focus on research and analysis, and has since become a leading industry commentator, as well as a regular contributor to the financial pages of the national press. He’s a frequent guest on TV and radio, and for several years provided daily business bulletins on LBC. 

Photo by Deeana Arts: https://www.pexels.com/photo/man-driving-vehicle-near-tree-1563678/

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In just a few weeks (5th April 2024) it will be the end of the financial year. And that means if you want to make the most of your 2023/24 ISA allowance, you need to take action soon.

As you may know, ISA stands for Individual Savings Account. ISAs are saving and investment products where you aren’t taxed on the interest you earn or any dividends you receive or capital gains you make. An ISA is basically a tax-free ‘wrapper’ that can be applied to a huge range of financial products.

With ISAs you don’t get any extra contribution from the government in the form of tax relief as you do with pensions. But – except in the case of Lifetime ISAs – you can withdraw your money at any time (subject to any rules set by the provider about the term and notice period required) and you won’t be taxed on it.

Everyone has an annual ISA allowance, which is the maximum you can invest in ISAs in the year concerned. In the current financial year (2023/24) this is a relatively generous £20,000.

There are currently four main adult ISA categories: Cash ISA, Stocks and Shares ISA, Innovative Finance ISA (IFISA) and Lifetime ISA (LISA).

You can divide your £20,000 ISA allowance among these in any way you choose, though the most you can invest in a Lifetime ISA in a year is £4,000. Note also that you are currently only allowed to invest in one ISA in each category per year (although this will change from 2024/25).

Let’s look at each ISA type in a bit more detail…

Cash ISA

Cash ISAs are like standard savings accounts, except the interest you receive doesn’t incur tax.

In the last few years cash ISAs declined significantly in popularity. That was partly due to the very low rates of interest many were paying (often below the rates paid on ordinary non-ISA savings accounts).

In addition the Personal Savings Allowance (PSA), introduced in 2016, meant that basic-rate taxpayers could earn up to £1,000 in savings interest every year without paying tax anyway. 

• Higher-rate (40%) taxpayers earning over £50,270 get a reduced £500 tax-free PSA while additional-rate (45%) taxpayers earning over £125,140 a year get no PSA at all. 

While interest rates were very low, most people didn’t have to pay any tax on their savings interest. So for most there was no real incentive to open a cash ISA.

In the last year or so things have changed, however. Interest rates on savings accounts have been rising steadily, and at the time of writing the best (both ISA and non-ISA) are around 5%. That means basic rate taxpayers now only need around £20,000 in ordinary savings to have to start paying tax on the interest, and higher-rate taxpayers around £10,000.

Clearly if you have to start paying tax on your savings interest, a Cash ISA suddenly looks a lot more attractive. That applies especially if you’re a higher or additional rate taxpayer, as the interest on your savings will be taxed at your highest marginal rate.

In addition, money invested in a cash ISA remains tax-free year after year. So interest paid on your interest will be tax-free in future years as well.

For all these reasons, if you’re likely to exceed your personal savings allowance (or don’t have one) there is a good case for using at least some of your annual ISA allowance on a cash ISA.

Stocks and Shares ISA

Stocks and shares ISAs are a good choice for many people saving long term.

Over a longer period the stock market has outperformed bank savings accounts, often by a considerable margin. You do, though, have to expect some ups and downs in the value of your investments in the short to medium term.

You can opt for a standard stocks and shares ISA offered by a wide range of financial institutions and let them choose investments for you. Alternatively you can use self-investment platforms such as BestInvest and Hargreaves Lansdown to pick your own investments from the wide range of shares and funds available.

In recent years I have invested much of my own annual ISA allowance in a stocks and shares ISA with Nutmeg, a robo-manager platform that has produced good returns for me. You can read my in-depth review and article about Nutmeg on my Pounds and Sense blog if you like..

Innovative Finance ISA

IFISAs are on offer from a growing range of peer-to-peer (P2P) lending platforms. 

P2P platforms allow people to lend money to businesses and private individuals and get their money back with interest as the loans are repaid. If you invest in the form of an IFISA all the interest you receive from P2P lending is paid tax-free, otherwise it’s taxed as income (though interest from P2P lending does qualify for the PSA of up to £1,000 a year, mentioned above).

Peer-to-peer platforms generally offer more attractive interest rates than bank and building society accounts – from around 5% to 10% or more. They aren’t covered by the same guarantees as the banks and are therefore riskier, though. And if you need your money back urgently there may be delays and/or extra charges to pay.

Nonetheless, in the current climate of stock market volatility, growing numbers of people are looking to IFISAs as a home for at least some of their savings/investments.

One such option I have used myself is Kuflink, a P2P property investment platform. They offer an IFISA with automatic diversification over a 1, 3 or 5 year term (you can also choose your own self-select loans within an IFISA wrapper). You can read my full Pounds and Sense blog review of Kuflink here.

Another IFISA option (which I am using myself this year) is Assetz Exchange. They prioritize lower-risk property investments such as supported housing for people with disabilities, which you can invest in through a self-select IFISA. You can read my full blog review of Assetz Exchange here.

Lifetime ISA

Lifetime ISAs or LISAs are intended to encourage younger people to save. You have to be under the age of 40 – though over 18 – to open one.

LISAs are designed for two specific purposes: buying your first home and saving for retirement. How they work is that you can pay in up to £4,000 a year (lump sums or regular contributions) and the government will top this up with another 25%. As long as you open your LISA before the age of 40 you will continue to receive the bonuses on your contributions until you reach 50.

So if you pay in the maximum £4,000 in a year, the government will top this up to £5,000. If you pay in the full £4,000 every year from the age of 18 to the upper limit of 50, you will therefore get a maximum possible bonus from the government of £32,000. That is in addition to any growth in the value of the investment itself, of course.

LISAs are somewhat different from the other types of ISA mentioned above, but nonetheless any money you invest in one comes out of your annual ISA allowance, currently £20,000. So if you pay the maximum £4,000 into a LISA this year, that comes out of your £20,000 ISA allowance, leaving you with ‘just’ £16,000 to invest in other sorts of ISA.

Your money will grow without any tax deductions in a LISA, and you can also withdraw without having to pay tax. However, there are certain restrictions. In particular, you can only use the money in your LISA for one of two purposes: paying a deposit on your first home or saving for retirement.

While you can access your money for other reasons, you will then lose 25% of the total, including your own contribution and the government bonus along with any investment growth. That means you may get back less money than you put in.

Closing thoughts

As mentioned above, the 2023/24 ISA allowance is £20,000 and offers the potential to save a lot of money on tax, assuming you are lucky enough to have this amount to save or invest. But, very importantly, it cannot be rolled over. 

So if you don’t use your 2023/24 ISA allowance by 5th April 2024 at the latest, it will be gone forever. It is therefore vital to attend to this now and ensure you get as much benefit as possible from this valuable tax-saving concession.

As always, if you have any comments about this article, please do leave them below.

Disclaimer: I am not a professional financial adviser and cannot give personal financial advice. You should do your own ‘due diligence’ before making any investment, and seek professional advice from a qualified financial adviser if in any doubt how best to proceed. All investments carry a risk of loss.

Nick Daws writes for Pounds and Sense, a UK personal finance blog aimed especially (though not exclusively) at over-fifties.

Photo credits: Pexels

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Q I’m from Italy, currently living in the UK, and I’ve invested some of my savings using a European investment platform. It doesn’t offer an ISA, but is it worth switching my investments to an ISA for the tax benefit? If I did this and then returned to the EU what would that mean for the investment?

A An ISA is a savings account with tax benefits that is available to individuals who are resident in the UK.

Savings can be held as cash or invested in stocks and shares with any income received (i.e. dividends or interest) and capital gain on the sale of shares exempt from UK taxation. For standard ISAs, there is an annual limit of £20,000 that can be put away each financial year into these accounts.

For smaller amounts, the benefit will be limited and will depend on an individual’s circumstances as income or gains may well be covered by their income tax or capital gains tax exemptions in any case.

It might be that you can leave your investments in Italy and not have to pay UK tax on the income – for example, if you only receive dividend income and this, together with any UK dividends, is less than £2,000 per annum, you would not have to pay any extra tax.

However, foreign income in excess of this amount will require the completion of an annual self-assessment tax return which may be an unwelcome administrative burden.

If you were to move back to Italy, you would obviously no longer be a resident in the UK, so while you could continue to hold an ISA, you would not be able to make any further contributions to it.

You’d also need to think about the fact that the Italian Revenue Agency is unlikely to allow the same tax-free status on your investments.

Sean is a Director in Mazars Private Client tax advisory team providing advice on a wide range of tax issues. Sean works with families, entrepreneurs, trustees and other stakeholders to ensure their tax affairs are structured in a way that meets their objectives.

Photo Credits: Pexels

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Your Questions Answered panellist Laura Suter explains the rules surrounding tax-free savings accounts, or ISAs.  

Question: I have an investment ISA but cash ISA rates are looking better now. Can I have both? How does the annual allowance work between each? 

Answer: There are some strict rules about ISAs that can get pretty complicated, so make sure you don’t fall foul of them or risk an unwanted letter from HMRC.  

The good news is that you can have more than one ISA open at a time. That can be two or more of the same type, such as two cash ISAs, or different types, such as a cash and Investment ISA.

However, the golden rule is that you can only pay into one of each type in any tax year, which runs 6th April to 5th April). This means you can pay into both a cash ISA and a stocks and shares ISA in one year, or a cash ISA, a Lifetime ISA and a stocks and shares ISA. However, you cannot pay into two different cash ISAs, for example, in one tax year.

In your example, if you have already got and paid into an investment ISA in the current tax year, you can still open a cash ISA and pay into it without breaking the rules. 

If you accidentally pay into more than one cash or investment ISA in a year, don’t attempt to fix it yourself. Instead, call HMRC’s ISA helpline on 0300 200 3300 to get advice on what to do. 

The other thing you need to check is how much you’re paying into the accounts each year. You can pay in up to £20,000 into your ISA accounts each year, but that’s the total for all of them, not per account.

If you’d already paid £20,000 into your investment ISA this tax year, you wouldn’t be able to put anything in your cash ISA. But, if you’d only paid £10,000 into your investment ISA, for example, you’d be able to put £10,000 into your cash ISA.  

There is a specific annual limit of £4,000 for a Lifetime ISA, but this also counts as part of your overall £20,000 limit – it’s not separate. 

Something to look at when working out if you’ve hit this annual limit is whether your ISA account is flexible or not. If it’s flexible it means that if you deposit money and then withdraw it in a tax year, you can pay that money back in without it counting towards your ISA limit.

For example, if you pay £20,000 into an ISA, then withdraw £10,000 of it and then decide you want to pay in £5,000, you wouldn’t be able to if you didn’t have a flexible ISA (as you’d already have hit your £20,000 limit). But you would be able to with a flexible ISA, as you’re just replacing money you’d already paid in. 

On the investment vs cash decision, having cash savings is a good plan if you know that you’ll need the money in the next few years or if you want a readily-accessible emergency pot to dip into. But otherwise you should think about investing. That’s because investing is likely to be you best option for generating a higher return for your long-term savings.   

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. 

Photo Credits: Unsplash

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The UK has some of the most generous tax-efficient saving accounts in the worlds, commonly known as Individual Savings Accounts or ISAs.

There are four types of ISA’s available to UK residents: cash ISA’s, stocks and shares ISA, lifetime ISA or LISA and Innovative finance ISA.  

If desired, you can have all of the four types of ISA’s, however, there is a £20,000 yearly allowance across all of the ISAs. If you don’t use your ISA allowance within a tax year, it does not roll over – so in other words if you don’t use it, you’ll lose it.  

Let’s take a look at each type of ISA and what they offer. 

Cash ISA 

A cash ISA is essentially a basic savings account available to UK residents over the age of 16. The recurring theme across all types of ISA’s is that any interest earned within the ISA is tax-free.  

There are two types of cash ISAs available to savers: easy access cash ISAs and fixed-rate cash ISAs. Easy access provides flexibility to savers to access their money without penalty (each ISA will have it’s own terms and conditions to consider).

However, these types of cash ISAs tend to have lower interest rates at the convenience of having easy access. On the contrary, fixed-rate cash ISAs tend to offer higher interest rates, but they tend to have a penalty for withdrawing outside of the set term. 

Lifetime ISA (LISA) 

LISA’s are one of the most lucrative, yet restrictive, ISA’s available to savers between the ages of 18 and 40. Although the limit is £20,000 per year across all ISA’s, the LISA is unique in that you can only put a maximum of £4,000 per year into this account.  

It’s very important to note that money saved within a LISA can only be used for 2 things to avoid penalty – a first-time home purchase and/or retirement (60+).

LISA’s benefit from tax-free interest as the other ISA’s, but in addition the government top-up this account by 25% to a maximum of £1,000 per tax year. So for every £4 you put into the account, you’ll receive a £1 top-up to a maximum of £1,000 per tax year.  

There are quite a few rules to be aware of when it comes to LISA’s and their use which are too lengthy to discuss in this article, so make sure to get more information.  

Stocks & Shares ISA  

This account is available to UK residents 18+, and allows money within this account to be invested in various assets, such as stocks and shares or bonds. Capital growth and dividends earned within a stocks & shares ISA are tax-free, no matter how large that sum may be.  

Money held within a stocks & shares ISA can be accessed at any point without any penalties or restrictions, once the funds are no longer invested. Of course, with any investments your capital is at risk, and there is no exception to this whether it is within an ISA or not.  

Innovative Finance ISA 

An innovative finance ISA allows you to partake in a peer-to-peer lending scheme, where your money is loaned to a business or individual, and the borrower pays back the loan to you plus an agreed amount of interest over a set term. As this is done within an ISA, the interest earned would be tax-free. 

However, as banks are not the intermediary in this transaction, it carries higher risk that borrowers can default on the loan and essentially your money would not be paid back to you.

Additionally, innovative finance ISAs are not covered by the financial services compensation scheme (FSCS), and therefore you have no protection to get the money back if the borrower defaults on the loan. 

If you are saver looking for a place to stash away you cash, ISAs are credible accounts helping you to get more out of your money. 

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