Maximising Returns with Tax-Free Individual Savings Accounts. Part II

October 16, 2023

In the first instalment of our series on Individual Savings Accounts (ISAs) on Payrow's blog, we delved into the essentials: What exactly is an ISA? What benefits does it offer? And what are the different types of ISAs, accompanied by their respective features? Should you wish to immerse yourself in these foundational details, we recommend revisiting the article Maximising Returns with Tax-Free Individual Savings Accounts. Part I

Having established the basics, this follow-up piece takes a step further. We shall explore who is eligible to open an ISA, how one can manage their ISA effectively, the possibilities around switching ISAs, and some crucial nuances to ensure maximised returns. 

Who Can Open an ISA?

To open an ISA, you must also be either a resident in the UK or a Crown servant (diplomatic or overseas civil service) or their spouse/civil partner if you don’t live in the UK. Other restrictions depend on the type of the ISA you would like to open. 

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How to Manage Your ISA

Once you have opened your ISA, you need to clearly understand what you can and cannot do with it. As you can see from the table above, the amount you can place in an ISA depends on the type you have. For adult ISAs, £20,000 is available for the current tax year, but you can spread this across different types of accounts. 

Note that there is an annual limit of £4,000 for lifetime ISAs. So, if you want to save more, you’ll need to open a different type of savings account. The government increases the amount you contribute by 25 per cent, so the £4,000 saved will be boosted to £5,000.

Some flexible ISA providers allow you to withdraw money and deposit it back into the account during the same tax year without affecting your benefit amount. Others don’t allow this. Check whether this is the case before taking any action.

Is It Possible to Switch ISAs?

Yes, it’s possible to change ISA providers, for example, to have a higher interest rate or change your type of ISA account (from a cash ISA to a stocks and shares ISA). However, certain procedures and restrictions may apply when transferring investments. And keep in mind that tax rules may change in the future. 

If you simply close one ISA and open a new account, you will lose the tax-free status. Instead, people should usually ask the new ISA provider to transfer the money for them. To do this, make sure the new provider accepts transfers and doesn’t charge transfer or withdrawal fees, and follow their procedures.

If you are transferring money that you have put into an ISA in the current tax year, there’s an obligation to transfer all of it. If you have other ISAs from previous years, some or all of the money from these can also be transferred into the current ISA.

And if you’re interested not only in savings but also in business accounts, check out Payrow’s website. The advanced and secure platform offers multi-currency payment accounts in the UK, allowing access to cross-border payments and automated invoicing.

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