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ISAs explained

We explain everything you need to know about tax-efficient ISAs: what they are, how they work, and what your allowance is.

What is an ISA?

ISA stands for Individual Savings Account, it is a ‘tax efficient’ account, or a ‘tax wrapper’ for a savings or investments account, which means you don’t pay any tax on any returns or interest earned by money held in an ISA. 

There are four kinds of ISAs (see ‘how many ISAs can I have’ below for more on this), but Chip is offering access to a Stocks and Shares ISA, which means you wont need to pay tax on the returns you earn with your funds. 

You can only put a limited amount of money into an ISA every tax year, this is known as your annual ISA allowance. 

You can read more about ISAs on the official government website: gov.uk/individual-savings-accounts    

What’s my ISA allowance?

All UK residents over the age of 18 (or 16 for cash ISAs only) have an annual £20,000 ISA allowance (for the 2020/21 tax year, ending 5 April 2021). Any unused allowance doesn't roll over into the following tax year. 

So if for example you don’t use your full £20,000 this year (2020/21), and only put in £15,000, you can’t carry the remaining £5,000 over to the next tax year and invest £25,000 into an ISA in 2021/22. 

You open a stocks and shares ISA in the 2020/2021 tax year and put in your full allowance of £20,000 before April 2021.

 

The investments perform well* over the following year and increase in value to £25,000 by April 2022. You do not need to pay any tax on those returns.

 

In the 2021/2022 tax year you can top with an additional £20,000.

So now you have;

  • £20,000 (your initial investment in the 2020/2021 tax year);
  • + £5,000* (tax-free capital growth);
  • + £20,000 (your next investment in the  2021/2022 tax year);

giving you a total of £45,000 in your ISA.

Any subsequent growth will be tax free, and you can repeat this process every tax year.

*EXAMPLE ONLY. This example is simply to explain how ISA allowances work with capital growth, in no way are we saying this is an expected cash return you will see from an investment product we list.

 

Please consider all the risk/return information carefully before investing, and remember your capital is at risk.

 

What are the benefits of an ISA?

The main benefit of an ISA is that the returns are tax exempt, in essence you don't pay income tax or capital gains tax (CGT) on gains made within an ISA. 

If you complete a tax return, you do not need to declare any interest, income or capital gains from money in an ISA.

CGT is a tax you'll have to pay on the gain you make when selling things such as shares, or a second home.

 

For example, if you buy fund units for £2,000 and these increase in value to £3,000, and you sell them, you've made a £1,000 gain*. You might then have to pay CGT on that gain. But if you made those gains in an ISA, you wouldn’t need to pay tax.

 

However, it is worth noting that you're allowed to make £12,300 of gains this tax year (2020/21), and earn up to £1,000 in interest, outside of an ISA before any tax applies.

You can read more about capital gains tax on the government’s official site: gov.uk/capital-gains-tax, if you’re unsure about your tax status you could seek independent financial advice. Note that Chip does any offer any financial, investing or tax advice, and this does not qualify as financial or tax advice.

*EXAMPLE ONLY. This example is simply to explain how capital gains tax works, in no way are we saying this is an expected cash return you will see from an investment product we list.

 

Please consider all the risk/return information carefully before investing, and remember your capital is at risk.

 

How many ISAs can I have? / Does my ISA allowance cover all my ISAs? / Can I have a Stocks and Shares ISA and a cash ISA?

There's no specific limit for how many ISAs you can hold overall - but you can only pay into one type of each ISA in each tax year and your £20,000 allowance covers all of them. 

There are four types of ISAs:

  • Cash ISA
  • Stocks and Shares ISA (this is the type of ISA you will open through Chip) 
  • Innovative Finance ISA
  • Lifetime ISA (also known as LISAs)

Every tax year you can put money into one of each kind of ISA. The tax year runs from 6 April to 5 April.

You can save up to £20,000 in one type of account or split the allowance across the other types. But you can only move money into one of each type per tax year.

In one tax year, you could save;

 
  • £5,000 in a cash ISA;
  • £4,000 in a LISA;
  • £1,000 in an Innovative Finance ISA;
  • and £10,000 in a Stocks and Shares ISA.

But you couldn’t put £10,000 into one cash ISA and £10,000 into another cash ISA.

Is the Chip ISA a Flexible ISA?

Yes it is. Chip are actually one of the few providers to currently offer a flexible Stocks and Shares ISA. This means that you have the freedom to withdraw money from your Chip ISA, and then pay it back in at a later date (within the same tax year), without it counting against your annual £20,000 ISA allowance.

Say you pay £10,000 into your ISA, and then choose to withdraw £5,000 a month later.

 

With a regular ISA, this would mean you have £10,000 of your annual ISA allowance remaining for the current tax year.

However, with Chip’s flexible ISA, you would still have £15,000 of your annual ISA allowance remaining

Can I transfer an ISA from another provider into my Chip Stocks and Shares ISA?

We are not currently offering ISA transfers into Chip.

Can I transfer my ISA from Chip to another provider?

If you’d like to transfer your Chip ISA to another ISA provider, you will need to contact your new ISA provider to initiate the transfer process. The new provider will send you their ‘transfer in’ form and give you all the details on how to proceed.

All ISA transfers are handled digitally by our ISA manager, Seccl (read more about them in our legal details guide). Your new provider can initiate the transfer by contacting Seccl via email at transfer@seccl.tech, or electronically through their ISA transfer solution provider. Seccl can also be found at 20 Manvers St, Bath, BA1 1JW.

Please be aware that we are currently unable to accept posted transfer forms.

Feel free to contact us with any further ISA transfer questions via email at transfers@getchip.uk 

Can I have an ISA and a GIA through Chip? 

You can have both an ISA and GIA through Chip. 

For example, if you open an ISA and fill it up with your full £20,000 allowance, you can then also open a GIA if you want to invest more for the rest of the tax year.

Read more about investments

 

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