What is an ISA?
The Individual Savings Account (ISA) is a tax-free scheme for saving. For investors, the returns from ISA savings are free of UK income tax and capital gains tax.
With a maximum subscription of £15,240 per individual for the tax year 2015/16, a married couple/civil partners could jointly save £30,480 each year. If they saved this amount each year for ten years they would have a fund of almost £500,000 with fund growth at 5% compound per annum.
With a wide choice of investments that can underly an ISA, and its tax efficiency, an ISA is often the first port of call for an investor, particularly for higher rate and additional rate taxpayers as well as for and those restricted as to the amount of tax-relievable pension contributions they can make or benefits they can accrue because of existing pension provision.
Recent and forthcoming changes for ISAs:
Money can be taken out of an ISA at any time. However, before 6 April 2016 any money that is put back into the ISA to replace the money withdrawn earlier will count as a new subscription.
From April 2016 savers can withdraw and replace their savings in the same tax year without losing their ISA tax benefits. Savers can cover short-term needs without the long-term damage.
ISA benefits can now be passed on to spouses
Since April 2015 upon your demise, your spouse or civil partner is entitled to keep your ISA savings without losing this tax shelter. This represents a bonus for couples who have jointly saved into an ISA held in only one name.
Under the new rules, individuals will be permitted to save an additional amount in an ISA, up to the value of their spouse or civil partner's ISA savings at the time of death, without this amount counting against the surviving spouse's/civil partner's normal ISA subscription limit.
However, for deaths on or after the 3 of December 2014, an additional on-off ISA allowance is available to spouses or civil partners when an ISA saver dies, equal to the value of that saver's ISA holdings on their date of death. This effectively allows surviving spouses and civil partners to inherit the tax advantages of a deceased spouse's ISAs.
Innovative Finance ISA
Under this new account, interest and gains from peer-to-peer loans paid into an ISA can benefit from the ISA tax advantages from April 2016.