10 March 2017

ISA 2017: Your guide to ISAs

What's changing this year? Well, from 6 April: the annual ISA allowance will go up from £15,240 to £20,000 each tax year.

This, among other changes, offers a chance to make your money work harder for you.

What is an ISA?

ISAs, or Individual Savings Accounts come in a number of different kinds but they're all tax-efficient – they're like a protective wrapper around your money.

There are currently four different types of ISAs. What you choose should depend on what goals you have, what you want to save for and how you feel about risk. These are the Cash ISA, Stocks and Shares ISA, Lifetime ISA and Innovative Finance ISA. Not all ISA providers offer all of these types of ISAs. 

Whether you're topping up an existing ISA or opening a new one, the rise in the annual ISA allowance could make a difference to you.

How much can you save?

The amount you can put into an ISA from 6 April 2017 until 5 April 2018 will be £20,000. You can split your annual ISA allowance between the four different types of ISAs and each of these can be held with different providers. You can put all your annual ISA allowance into one type of ISA or split it across more than one type. However, you can only have one of each type in each tax year and you can only save up to £4,000 a year in the new Lifetime ISA.

Remember, any unused ISA allowance can't be carried forward into the next tax year, so if you don't use it, you lose it. ISA flexibility allows you to replace any money withdrawn from your cash ISA in the same tax year, without impacting your annual ISA allowance, subject to the accounts terms and conditions.

What type of ISAs are available?

Cash ISAs

Cash ISAs are open to UK residents aged 16 and over. The interest on a cash ISA is free from tax, so all the interest you receive, you keep. On other savings accounts, you may have to pay tax on the interest you receive, if this exceeds your Personal Savings Allowance.

Nationwide offers a range of cash ISAs.

Stocks and shares ISAs

Stocks and shares ISAs are different from cash ISAs. You're investing rather than saving, so they're riskier but could potentially offer higher returns than cash savings. This will depend on the performance of the investment fund, which could include company shares, government bonds or mixed funds. 

The value of your investment can go down as well as up so you may get back less than you originally invested. You need to be a UK resident, aged 18 or over to open a stocks & shares ISA.

Stocks & shares ISAs through Nationwide are provided by Cofunds.

Lifetime ISA

This new type of ISA will be available from April 2017 and is designed to help you save for your first home (costing up to £450k) or for retirement after age 60. The Government will add a 25% bonus on top of any contributions made. If you need to withdraw for any other reason (apart from terminal illness or death), there will be a penalty charge of 25% of the value withdrawn.

Nationwide does not offer the Lifetime ISA.

Innovative Finance ISA

The Innovative Finance ISA is geared towards peer-to-peer lending. Tax-free interest and tax-free capital gains can be received on funds lent through FCA-regulated peer-to-peer lending platforms.

Nationwide does not offer the Innovative Finance ISA.

Transferring to a new ISA

Most ISA providers accept transfers in from ISAs held with other providers, so you can switch to a new provider if you want but it's best to check with them before.

If you want to transfer your ISA funds to a new ISA provider then you need to ask the new provider to request the funds from your existing ISA provider. Don't close your existing ISA yourself or you'll lose the tax-efficient status on that money.

ISAs and inheritance rules

The spouse or civil partner of ISA holders who have died have the ability to inherit their ISA allowance.

The Inheritance ISA or 'Additional Permitted Subscription' (APS) rules allow you to use your partner's ISA allowance for up to three years from the date of their death or 180 days after the completion of the administration of the estate, if longer. 

The spouse or civil partner can then inherit their ISA allowance which will be equal to the amount held by the spouse or civil partner in their ISAs. For example, if they inherited an ISA allowance of £80,000, then during this time, an additional £80,000 could be held in your ISA. This is on top of your own annual ISA allowance of £20,000 that comes into effect from 6 April 2017.

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