What is an ISA?
- ISAs (Individual Savings Accounts) are tax-efficient accounts, introduced by the government, to encourage more of us to save.
- Each tax year the government sets a limit on the amount you can save in an ISA, currently £20,000.
- You can choose to save in a cash ISA, a stocks and shares ISA, a lifetime ISA (depending on your age and circumstance and up to the lifetime ISA limit), an innovative finance ISA or a combination of the four, providing you don’t exceed the limit.
- Keep in mind; you can only save into one cash ISA in a tax year. This includes Help to Buy: ISAs and cash ISAs held outside Lloyds.
- If you are 16 or over and resident in the UK for tax purposes you can apply for a cash ISA, but you need to be 18 or over to apply for a stocks and shares ISA, lifetime ISA or innovative finance ISA.
Additional information about how ISAs work
Each tax year – which runs from 6 April until 5 April the next year – you have a limit on how much money you can save in an ISA. This is your annual ISA allowance, and you can’t go above this limit. You can save up to £20,000 in the current tax year in either a cash ISA, a stocks and shares ISA, a lifetime ISA (up to the lifetime ISA limit), an innovative finance ISA or a combination of the four. You are limited on how many ISAs you can subscribe to each tax year.
You can only put money into one cash ISA, one stocks and shares ISA, one lifetime ISA and/or one innovative finance ISA in each tax year and you must make sure you don't exceed the total maximum allowance. The only exception is for customers who have opened a separate ISA to pay in an Additional Permitted Subscription allowance following the death of a spouse or civil partner.
Cash ISAs are like a normal savings deposit account, but with a limit to how much you can pay into them each year. You can only pay into one cash ISA in each tax year. This includes Help to Buy: ISAs and any cash ISAs held outside Lloyds.
They are a good way to make the most of your savings because the interest earned is free from tax, which you may have to pay on other savings accounts. If you have a savings account, it might make sense for it to be a cash ISA.
Cash ISAs are simple to open and in many ways no more complicated than a standard savings account. Despite this, many people haven't opened an ISA and a lot of those people have savings elsewhere. If you are keeping your savings in a regular bank or building society account, you could be paying unnecessary tax on the interest.
Stocks and shares ISAs
Stocks and shares ISAs are another way to invest up to your annual ISA limit, in a fund that’s linked to the performance of the stock market. They are one of the most tax efficient ways to invest in a range of investments because you have no personal liability for income tax or capital gains tax. However, the value of such an investment could go up and down, and you may get back less than you originally invested.
Innovative finance ISAs
An innovative finance ISA allows interest and gains from peer to peer loans to qualify for tax advantages. Lloyds Bank does not offer this product.
The Government introduced lifetime ISAs on 6 April 2017. They allow you to save up to the lifetime ISA allowance each tax year and receive a government bonus of 25% of what you have saved. You can use some or all of the money to buy your first home, or keep it until you’re 60 – it’s up to you.
Lloyds Bank doesn’t offer this ISA however you are able to transfer in from and out to a lifetime ISA subject to product rules.
Frequently asked questions
How do ISAs save you tax?
The interest on cash ISAs is tax free. This means that, while you normally pay income tax on interest in other savings accounts, you don't pay any on cash ISA interest. You do not pay any additional personal income tax or capital gains tax on any money you earn from a stocks and shares ISA, innovative finance ISA or lifetime ISA.
Who can have an ISA?
You just need to be 16 or over to apply for a cash ISA, and 18 or over to apply for a stocks and shares ISA, innovative finance ISA or lifetime ISA – and a UK resident for tax purposes in all of these cases. Crown employees living abroad (such as diplomats and members of the armed forces) can also apply.
Can I apply for a Help to Buy: ISA?
You can no longer apply for a Help to Buy: ISA. If you already have one you can still save for the government bonus. If you want to, you can transfer it to another provider. More about transferring your Help to Buy: ISA.
What happens if my house sale falls through?
We’ll set your Help to Buy: ISA back up with the savings you had in at the point you claimed the bonus, but you'll need to visit your local branch to start the process. The bonus will return to the scheme administrator but can be claimed again when you find another home.
If your house sale has fallen through due to Covid-19 (up to 30 June 2020) you will have 15 months (rather than the normal 12) to reinstate your Help to Buy: ISA from the date you first closed the account and your conveyancer should give you a Purchase Failure Notice stating 15 months.
Is it difficult to transfer money between ISA providers?
You can often transfer your ISA between different providers – you will need to ask your new ISA manager to arrange the transfer for you. You can also move money between a cash ISA, a stocks and shares ISA , a lifetime ISA, or an innovative finance ISA without affecting your yearly allowance, unless you are transferring current tax year contributions. However, flexible ISA rules allow you to withdraw money and replace it later in the same tax year, without losing any of your tax-free entitlement.
Do you need a lot of money to start an ISA?
No. You can open many cash ISAs for as little as £1. Stocks and shares ISAs generally have higher minimum contributions.
What are the ISA savings limits?
The maximum amount you can invest in the current tax year is £20,000. You can choose to use your ISA allowance in a cash ISA, a stocks and shares ISA, an innovative finance ISA, a lifetime ISA (depending on your age and circumstance and up to the lifetime ISA limit) or any combination of the four as long as you don't exceed the annual allowance.
Keep in mind; you can only save into one cash ISA in a tax year. This includes the Help to Buy: ISA and any cash ISAs held outside Lloyds.
The Help to Buy: ISA allowance is lower than the overall ISA allowance as you can only deposit up to £200 per calendar month. If you invest in a Help to Buy: ISA you can invest any remaining annual allowance into a stocks and shares ISA, an innovative finance ISA, a lifetime ISA (depending on your age and circumstance and up to the lifetime ISA limit) or a combination of the three.
When does the tax year run to?
The tax year runs from April 6 in one year to April 5 in the following year.
What is the difference between variable and fixed rate ISAs?
A variable rate ISA offers you a rate of interest which can go up and down. With a fixed rate ISA you know in advance what your interest rate will be over your selected fixed term.
You must not pay into more than one cash ISA in any one tax year. The only exception is if you have opened a separate cash ISA to pay in an Additional Permitted Subscription allowance following the death of a spouse or civil partner.
Do you have to lock your money away for a long time?
It’s up to you. Variable rate cash ISAs offer savers instant access to their money. Fixed rate ISAs offer savers a higher rate of interest if you can lock your savings away for 2 years or more (withdrawal charges will apply). Stocks and shares ISAs may be more appropriate if you are looking to invest for a period of 5 to 10 years.
Important legal information
Lloyds Bank plc. Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales No. 2065. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278.
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