Completely new to ISAs

[hal3210]

I've never had an ISA before so please forgive me if my questions are somewhat basic!

In a nutshell, I could open a cash instant access (not fixed term) ISA now, investing up to £20k, the interest earned won't count towards my personal tax allowance in the 23/24 tax year.

Is it then possible for me to open another cash ISA (with a different financial institution) after 6th April 2024, investing up to £20k and again interest won't count towards my personal tax allowance for the 24/25 tax year.

What happens at the end of the 12 month period? Do I simply keep the ISA going and add another £20k or, if the interest rate drops, do I simply transfer the cash ISA (the full balance of £20k plus whatever interest is earned) and an additional £20k to a different financial institution's cash ISA? So, in the example above, I'd transfer the first cash ISA in mid March 2025 and the second cash ISA after 6th April 2025.

Am I right in thinking that if I withdraw some of the cash, I am able to re-pay it back in within the same tax year?

Am I also right in thinking that if I withdraw all of the cash to a bank account this null and voids the ISA forever and that to keep the ISA going, I'd have to keep transferring it?

If I was to withdraw the total balance from an ISA into a normal bank account, would I still be able to just start a new ISA from scratch in the next tax year? I wouldn't want to accumulate anywhere too near the £85k FSCS protection limit in one institution.

Am I also right in thinking that any amount up to £20k can be invested each year, i.e. I wouldn't have to pay in £20k per year? Is it also acceptable to invest £20k in a cash ISA and to keep it going for several years without adding any additional funds (besides the annual interest that would accrue).

Finally, is an ISA viewed in the same way as a savings account when it comes to probate, i.e. probate is not usually required until the balance is over £30k? I appreciate that this will vary at different financial institutions, some require probate for savings accounts with balances of £20k and others in excess of £50k.

Virgin Money and Charter Savings Bank pay the highest interest rate on instant access ISAs, has anyone experience of using these? Virgin Money's Trust Pilot score is 1.5 which put me off using them initially.

All I'm aiming to do is to keep the interest on £20k of savings per year continuously tax free - I'm sure this all sounds very basic and obvious and I'm no doubt overcomplicating things but as I say, I've never held an ISA before so advice would be greatly appreciated. Outlining the main differences between an ISA and a normal savings account would be much appreciated. Thanking you.

[Macneil]

hal3210 said:

I've never had an ISA before so please forgive me if my questions are somewhat basic!

1 In a nutshell, I could open a cash instant access (not fixed term) ISA now, investing up to £20k, the interest earned won't count towards my personal tax allowance in the 23/24 tax year.

2 Is it then possible for me to open another cash ISA (with a different financial institution) after 6th April 2024, investing up to £20k and again interest won't count towards my personal tax allowance for the 24/25 tax year.

3 What happens at the end of the 12 month period? Do I simply keep the ISA going and add another £20k or, if the interest rate drops, do I simply transfer the cash ISA (the full balance of £20k plus whatever interest is earned) and an additional £20k to a different financial institution's cash ISA? So, in the example above, I'd transfer the first cash ISA in mid March 2025 and the second cash ISA after 6th April 2025.

4 Am I right in thinking that if I withdraw some of the cash, I am able to re-pay it back in within the same tax year?

5 Am I also right in thinking that if I withdraw all of the cash to a bank account this null and voids the ISA forever and that to keep the ISA going, I'd have to keep transferring it?

6 If I was to withdraw the total balance from an ISA into a normal bank account, would I still be able to just start a new ISA from scratch in the next tax year? I wouldn't want to accumulate anywhere too near the £85k FSCS protection limit in one institution.

7 Am I also right in thinking that any amount up to £20k can be invested each year, i.e. I wouldn't have to pay in £20k per year? Is it also acceptable to invest £20k in a cash ISA and to keep it going for several years without adding any additional funds (besides the annual interest that would accrue).

8 Finally, is an ISA viewed in the same way as a savings account when it comes to probate, i.e. probate is not usually required until the balance is over £30k? I appreciate that this will vary at different financial institutions, some require probate for savings accounts with balances of £20k and others in excess of £50k.

Virgin Money and Charter Savings Bank pay the highest interest rate on instant access ISAs, has anyone experience of using these? Virgin Money's Trust Pilot score is 1.5 which put me off using them initially.

All I'm aiming to do is to keep the interest on £20k of savings per year continuously tax free - I'm sure this all sounds very basic and obvious and I'm no doubt overcomplicating things but as I say, I've never held an ISA before so advice would be greatly appreciated. Outlining the main differences between an ISA and a normal savings account would be much appreciated. Thanking you.

OK just what I think form my own experience, may be mistaken
1 Yes
2 Yes
3 I think it depends on the t's and c' of the provider but in principle yes
4 depends on provider
5 Yes
6 Yes but you've covered that in Q1, you can have more than isa,
7 Yes
8 Dunno

The difference is the tax free status, when interest rates were less than 1 per cent they were pointless as most people wouldn't pay tax on the interest ina regular savings accountbut now a lot of people are paying tax on savings interest so ISA's are now a no brainer for as long as rates are like this.

[hal3210]

Many thanks for the reply Macneil, I've never paid any attention to ISAs before - as you said, I wouldn't have paid tax on an ordinary savings account before so ISAs were pointless until the interest rate went up.

I've just read somewhere that if you cash in an ISA and withdraw all the funds to a bank account, the ISA loses its tax-free status? I'm not sure that this is true as I'd imagine the that any interest earned by the ISA prior to the withdrawal is tax-free?

Whether that is true or not, it definitely seems to make sense to start an ISA and invest £20k and to keep it in or to transfer to another ISA at the end of the tax year.

[okgo]

The bigger question is why you want to build a large pot of money that will lose its value slowly but surely vs inflation.

[FrazDav]

I’d recommend accessing last week’s Martin Lewis podcast via iPlayer. I think it will answer most (not all) of your questions

https://www.bbc.co.uk/sounds/play/p0hjfjj0?partner...

[greengreenwood7]

if the OP is in'td in something other than a basic ISA, then a stocks/shares based flexible ISA is IMO a great option.

gives the flexibility to pullout funds for emergencies any mount of times during a financial year, and as long as those funds are put back ( or even a lesser amount than was withdrawn) then the isa continues to act as a tax shelter.

ie/ if there's £25k's worth of investments in it, can take 24999 out and any amount back up to that 24999 can be paid back in. not ideal to do if the intent is to build up a long term fund, but in case of needing emergency cash its a great tool.

don't know who else offers them, as few providers do - mine's with IG.
if OP doesn't fancy choosing the stocks, just grab a couple of ETF funds....

[bitchstewie]

hal3210 said:

Many thanks for the reply Macneil, I've never paid any attention to ISAs before - as you said, I wouldn't have paid tax on an ordinary savings account before so ISAs were pointless until the interest rate went up.

I've just read somewhere that if you cash in an ISA and withdraw all the funds to a bank account, the ISA loses its tax-free status? I'm not sure that this is true as I'd imagine the that any interest earned by the ISA prior to the withdrawal is tax-free?

Whether that is true or not, it definitely seems to make sense to start an ISA and invest £20k and to keep it in or to transfer to another ISA at the end of the tax year.

Just think of the ISA as a wrapper.

Any money you put into it is exempt from tax.

If you take it out the wrapper you don't pay tax on it but you lose the benefits of it being in the ISA wrapper.

Personally I'd prioritise putting the £20K in an ISA wrapper this tax year over being 100% sure what you intend to do with it as you can always invest or transfer it later but you need it in the 2023/24 tax year wrapper first.

[LooneyTunes]

hal3210 said:

Is it then possible for me to open another cash ISA (with a different financial institution) after 6th April 2024, investing up to £20k and again interest won't count towards my personal tax allowance for the 24/25 tax year.
.

It doesn’t have to be a case of opening a new one each year.

Rules may have changed, but iirc when ISAs first came along, if you had ISAs with several providers you could only contribute to one in any given financial year.

[Easternlight]

okgo said:

The bigger question is why you want to build a large pot of money that will lose its value slowly but surely vs inflation.

So go on then, where would you put the money?

[okgo]

Easternlight said:

So go on then, where would you put the money?

Obviously depends somewhat on time frames before needing said money but having some exposure, depending on risk appetite, to equities would be my move.

Truthfully there isn’t enough information here to know but holding large cash positions which the Brits seek to love isn’t going to make sense long term. Suspect rates will begin to drop fairly soon too, which will be reflected in rates offered quickly enough.

[bitchstewie]

But just to stress money can be moved between Cash and S&S ISA's down the line.

You can't extend the 2023/24 deadline so main thing if in doubt is get the money in the wrapper

[greengreenwood7]

bhstewie said:

Just think of the ISA as a wrapper.


If you take it out the wrapper you don't pay tax on it but you lose the benefits of it being in the ISA wrapper.

.

unless its a flexible ISA, which does allow taking money out and replacing it.....

[bitchstewie]

greengreenwood7 said:

unless its a flexible ISA, which does allow taking money out and replacing it.....

True but it won't carry will it? So if you don't use your 2023/24 allowance by 6th April it's lost.

[greengreenwood7]

bhstewie said:

greengreenwood7 said:

unless its a flexible ISA, which does allow taking money out and replacing it.....

True but it won't carry will it? So if you don't use your 2023/24 allowance by 6th April it's lost.

correct: take funds out during 23/24 and replace by the end of that finanical period and 'all's good'.....otherwise, yes the opportunity tax wise would be lost. But still a bloody handy tool.

[FriedMarsBar]

Not that any of the above answers are incorrect but if you want an overall summary and explanation here over to MSE

https://www.moneysavingexpert.com/savings/isa-guid...

I make sure I get my money into my ISA allocation ASAP amd have in the past drip fed it over the year.

[T_S_M]

I might just jump on to this thread with a question...

I have a stocks and shares ISA that I'm going to be maxing out at £20k (put in). Any profit I make from the investment will be tax-free won't it? And because it's in an ISA, I won't be subject to any capital gains tax either?

[okgo]

T_S_M said:

I might just jump on to this thread with a question...

I have a stocks and shares ISA that I'm going to be maxing out at £20k (put in). Any profit I make from the investment will be tax-free won't it? And because it's in an ISA, I won't be subject to any capital gains tax either?

Correct