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 on money held in an ISA.
There are four kinds of ISAs (see ‘how many ISAs can I get’ for more on this), but Chip is offering access to a stocks and shares ISA, which means you won’t need to pay tax on any 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) currently have an annual £20,000 ISA allowance (for the 2021/22 tax year, ending 5 April 2022). Any unused allowance doesn't roll over into the following tax year.
For example, if you don’t use your full £20,000 this year (2021/22), 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 2022/23.
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, income or capital gains from money in an ISA.
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 can open with a ChipX membership)
- 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 the following year.
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.
Can anyone open an ISA with Chip?
You can only open an ISA with a ChipX membership, provided you meet ISA eligibility criteria.
If you decide to downgrade, your ISA remains open, but restrictions on funds apply (see eligibility and costs for more detail).
You can close your ISA or transfer it through our customer support team, see below under “can I transfer my ISA from Chip to another provider?”.
Is the Chip ISA a Flexible ISA?
Yes it is. 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.
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 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 Custody Limited (Seccl), read more about them in our legal details guide.
Your new provider can initiate the transfer by contacting Seccl via email at firstname.lastname@example.org, 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 email@example.com
Read more about investments