Your ISA questions answered

We get a lot of questions about ISAs, especially at the start of a new tax year. Our Head of Products, Kris Brewster, answers some of them here.

Kris Brewster

We believe it’s important that everyone makes the most the of tax-efficient benefits of ISAs before they consider taking out a different type of account. That’s why we have a wide range of fixed and variable rate ISAs so that you can take advantage of tax-free savings over a period of time that’s right for you. Whether you’re saving for retirement, a holiday or simply a rainy day, we want to ensure there is an ISA to suit everyone from our range.

Kris Brewster, Head of Products

What is an ISA?

ISA stands for Individual Savings Account. You don’t pay tax on the interest you earn in an ISA, so it can be a good way to save tax-free.

What's an ISA allowance?

Each tax year (6 April to 5 April) the government sets a maximum amount of money you can save into an ISA. This is your annual ISA allowance. This tax year (2018/19) it’s £20,000 for adult ISAs and £4,260 for Junior ISAs.

For adults, you can split your annual ISA allowance between one Cash ISA, one Stocks and Shares ISA, one Innovative Finance ISA and – if you’re eligible – you can put up to £4,000 of your allowance into one Lifetime ISA.

Why hasn't my ISA allowance increased this year?

In the 2017/18 tax year, the ISA allowance rose from £15,240 to £20,000. It’s a significant increase that might have influenced the government’s decision not to raise the allowance in the 2018/19 tax year.

What types of ISA are there?

For adults, there are Cash ISAs, Stocks & Shares ISAs, Innovative Finance ISAs and Lifetime ISAs. Children can have a Junior ISA.

How do I choose an ISA that's right for me?

It depends how you want to save. If you want to be able to pay in and withdraw from your ISA, an Easy Access Cash ISA offers a variable rate of tax-free interest and allows you to get to your money when you need to. All our on-sale variable rate cash ISAs, with the exception of the Lifetime ISA, are 'flexible' so when you withdraw money your annual allowance won't be affected, as long as you replace the money in the same tax year.

Alternatively, If you have a lump sum you don’t need to access, a Fixed Rate Cash ISA gives you a guaranteed rate of tax-free interest for a set duration – usually between one and five years.

If you're looking to save for at least five years and you’re prepared to put your capital at risk – meaning you could get back less than you originally invested – Stocks and Shares ISAs can offer more potential for growth over the long term than Cash ISAs. You can talk to one of our financial advisers about Stocks and Shares ISAs.

 

Are ISAs still revelant now we have a Personal Savings Allowance (PSA)?

The PSA was introduced in April 2016 and means basic rate taxpayers can earn up to £1,000 in interest every year tax-free, while higher rate taxpayers can earn up to £500. Additional rate tax payers aren't entitled to a PSA.

Some people could argue the PSA means most savers won’t earn enough interest to start paying tax, which challenges one of the main advantages of ISAs. If you’re a higher earner and/or you have a sizeable amount of savings, or if interest rates rise in the future, you could end up having to pay tax on the amount of interest you earn over the PSA.

The PSA is in addition to your annual ISA allowance, so the interest you make on your Cash ISA stays completely tax-free and doesn’t count towards your PSA. Any interest earned from funds already in Cash ISAs will also remain tax-free.

ISAs offer other advantages as well. After you die, your spouse or civil partner can inherit your ISA allowance and any ISA funds will also remain tax-free – this isn’t the case with standard savings accounts. You can find out more about this on our Additional Permitted Subscriptions page.

What about the Lifetime ISA?

We're currently the only provider to offer a Cash Lifetime ISA which is designed to help people buy their first home or save towards retirement. If you’re aged 18 to 39, you can open a Skipton Cash Lifetime ISA online and save up to £4,000 tax-free each year, up to and including the day before your 50th birthday.

The government pays a 25% bonus on your contributions, up to a maximum of £1,000 a year, but there’s a government withdrawal charge of 25% if you take out your money before you reach 60 for anything other than buying your first home.

Next steps

Hopefully we’ve answered some of your ISA questions. Our specialists can help you explore your savings options – in branch, over the phone on 0345 600 5899 or on web chat.

Take a look at which ISA could be right for you

Lifetime ISA

The Lifetime ISA is designed to help eligible customers to save towards your first home or retirement.

Cash ISAs

If you’re thinking about how to make use of your tax-free ISA allowance, we can help.

Stocks & Shares ISAs

If you have long-term goals for your savings, we can help you consider investing in Stocks and Shares ISAs.

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