Updated: February 11, 2020

An Easy Guide to ISA Rules and Regulations

There are rules and regulations you should know about if you're opening an ISA. Read all about them in our guide

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Richard Angliss

Author: Richard Angliss - Finance Expert

Updated: February 11, 2020

At first glance, ISAs can appear complicated but using your annual ISA allowance could give you significant tax advantages on your savings and investments.

This guide is written to make things simple, giving you an at-a-glance understanding of the rules and regulations so you can plan your savings strategy with confidence.

If you save money into a normal savings account, interest you earn may be taxed. Saving into an ISA account, either through a cash ISA or an investment ISA, earns interest tax free. When you withdraw your money it remains free from income tax and, in the case of investment ISAs, free of capital gains tax.

Read on or click a link to jump ahead:

What are the ISA rules?

The government sets the Individual Savings Account limits each tax year. For the current tax year the limit is £20,000.

To open an ISA account you must be:

  • Resident in the UK
  • Aged 16 or over for a cash ISA
  • Aged 18 or over for a stocks and shares ISA
  • Aged over 18 but under 40 for a Lifetime ISA

ISAs are personal, individual, accounts and you cannot hold an ISA on behalf or with anyone else.

What are the rules for putting in money?

Each tax year you can put your money into one or multiple ISA accounts.

Each year you can have:

  • One cash ISA – a cash savings account
  • One investment ISA – often through a fund investing in stocks and shares
  • One innovative finance ISA – peer-to-peer lending loans

You can hold each type of ISA or one single type of ISA, but you must not exceed the £20,000 limit.

If you have a flexible cash ISA you can withdraw and replace your money without impacting your annual ISA allowance, but you must replace funds within the same tax year.

Your ISA allowance can be shared between different ISAs however you like, as long as you do not exceed the limits.

Examples of how you might choose to do this are shown in the table below:

Cash ISAs Investment ISAs Total Allowance
Example 1: £20,000 £0 £20,000
Example 2: £0 £20,000 £20,000
Example 3: £5,000 £15,000 £20,000

What happens if I exceed the ISA allowance?

If you inadvertently exceed the ISA allowance by mistakenly saving more money than you are supposed to in any kind of ISA, or accidentally invested in two ISAs of the same type in the same tax year, the HMRC have an advice line you can call for help.

The number is 0300 200 3300. It’s open 8am-8pm Monday to Friday and until 4pm on a Saturday.

While you may wish to deal with resolving the issue without drawing attention to your error, it’s unwise to try and fix the situation yourself. If you end up closing the wrong ISA account you could make things worse.

HMRC will take the details of which ISA had the payment which took you over the allowable limit and then reclaim the money, and claw back any tax you owe.

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What are the inheritance tax rules?

ISAs can be subject to inheritance tax (IHT), in some circumstances. If your spouse inherits your ISA the tax advantages remain intact and will not be subject to IHT. If you die and your partner doesn’t inherit your ISA(s), they will form part of your estate. Anything above £325,000 (the current IHT threshold) will be taxed at 40%.

Your ISA (or ISAs) will remain free of income tax and capital gains tax until they are closed by the executor of your estate. If your ISA isn’t closed during the estate administration, it will be closed by the provider three years and one day after your death.

When do the limits on the allowance change?

The ISA allowance is set by the government each tax year. For the 2019-2020 tax year, the allowance is £20,000. This is the official maximum amount an individual can put in an ISA between 6 April 2019 and 5 April 2020. This limit is likely to remain the same or rise for the new tax year, 6 April 2020 to 5 April 2021.

The current £20,000 limit was introduced in April 2017. Any changes to the current ISA allowance will be announced as part of the budget on Wednesday 11 March, 2020.

Speak to an expert

We work with independent financial advisers who are experts in ISA savings and investments. Get in touch and we’ll connect you with an expert who will be happy to answer all your questions and advise you on how to best use your ISA allowance, based on your short and long term financial goals.

Call 0808 189 0463 or make an enquiry to get started.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in ISAs. Ask us a question and we'll get the best expert to help.

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Richard Angliss

Richard Angliss

Finance Expert

About the author

Richard Angliss has made a career in financial services which stretches over 40 years.

His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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