What is an ISA?

UK residents can use ISAs (Individual Savings Accounts) to save and invest in a tax-advatanged way. An ISA allows individuals to earn interest or returns without paying income tax, capital gains tax, or dividend tax on the gains within the account.

The biggest draw of ISAs is their tax-free growth. Whether you’re earning interest on savings in a Cash ISA, dividends from a Stocks and Shares ISA, interest from peer-to-peer lending in an Innovative Finance ISA, or somethingelse inside an ISA, you won’t have to pay any taxes on these returns. This is particularly valuable for those in higher tax brackets or individuals aiming to build wealth over time, as it allows for more efficient growth of your savings.

Since the ISA is a tax-advatanged type of account, there are caps for how much an individual can put into ISAs each year. The UK government sets an annual contribution limit, which for the 2024 tax year was £20,000. Your contributions can be spread across different types of ISAs, e.g. Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs. Note: The Lifetime ISA has its own, lower, cap. That is because the Lifetime ISA is not only tax-advatanged; it also gives you a government bonus.

For UK residents, ISA can be powerful investment tools. Investments and savings grow there tax-free. With several different types of ISAs available, individuals can choose one or ones that best fits their savings goals, risk tolerance, and investment timeline. For those aiming for long-term wealth accumulation, maximizing ISA contributions each year can lead to significant tax savings and wealth growth over time.

Examples of Different ISAs

Sponsored Brokers

Visit Broker

United States accepted.

Visit Broker

United States accepted.

Visit Broker

United States accepted.

Visit Broker

United States accepted.

1. Cash ISAThis type of ISA works like a regular savings account but with the added benefit of tax-free interest. It’s suitable for people who want a low-risk, secure way to save money. Cash ISAs usually offer lower returns compared to investment options, but your capital is protected. It’s often used for short-term savings, such as emergency funds or holiday savings, where you do not want to deal with the possible fluctations of the market. A downside with keeping cash (instead of investments) long-term is that the interest might not outpace inflation, which will lower the purchase power of your money over time.
2. Stocks and Shares ISA
   A Stocks and Shares ISA allows you to invest in assets like stocks, bonds, mutual funds, and certain other financial instruments. The potential for returns is higher than with a Cash ISA, but with this comes greater risk. Any profits made on these investments are tax-free. Stocks and Shares ISAs are ideal for longer-term investments, e.g. saving for retirement or large future purchases.
3. Innovative Finance ISA (IFISA)
   This is a more specialized type of ISA and it is designed for innovative finance investments, e.g. peer-to-peer lending and crowdfunding investments. The interest and any other income is tax-free. The risks are high, since loans are not guaranteed to be repaid. However, it offers a unique way to diversify your portfolio while still benefiting from tax relief. Many investors use the IFISA for a smaller portion of their overall portfolio. The IFISA is suitable for money that you are willing to take a high risk with.
4. Lifetime ISA (LISA)
   A Lifetime ISA is designed to help younger savers (under the age of 40) create an account to either save for their first home or plan for retirement. The cap is currently £4,000 per year, and the government adds a 25% bonus on top of your contributions, up to a maximum bonus of £1,000 per year. The funds can be used to buy a home or can be accessed at age 60 for retirement. Withdrawals for any other reason before age 60 usually incur a penalty, although there are some exceptions, e.g. when the account holder is in poor health and expected to die within a year. The Lifetime ISA comes with many strings attached and it is important to read and understand the fine print before you put any money into a LISA. There are for instance very specific requirements in place regarding the purchase of a home using money from a LISA.

What is a Junior ISA?

A Junior ISA is a tax-advatanged savings acccount for children (individuals under the age of 18). The child will be permitted to manage the account at age 16, but can not make withdrawals until the age of 18.

When you set up a Junior ISA for a child, you get to chose between a Cash Junior ISA and a Stocks and Shares Junior ISA. The other ISA types are not available for children. The child can have both a Cash Junior ISA and a Stocks and Shares Junior ISA.

Annual Contribution Limits For ISAs

The government sets the contribution limits for ISAs and it can change the limits for each tax year if it wants to, e.g. to keep up with inflation or in an effort to encourage savings and investments.

For the 2024/25 tax year, the annual ISA allowance was £20,000, meaning you could contribute up to this limit across any combination of ISA types. For example, you could put £10,000 into a Cash ISA and £10,000 into a Stocks and Shares ISA, but the total contribution could exceed £20,000 within the tax year.

The Lifetime ISA has its own cap, which was £4,000 for the 2024/2025 tax year.

ISA Providers

Many different entities are approved to offer ISAs to the public. Many individuals use their bank, credit union or stock broker to open an ISA, but other alternatives exist, including building societies, friendly societies, peer-to-peer lending services, crowdfunding companies, and certain other financial institutions.

Flexibility and Transfers

Most ISAs are flexible in terms of transferring funds between different types of ISAs or between different providers. If you’re unsatisfied with your returns or want to switch to a new provider, you can transfer your existing ISA balance without affecting your annual contribution limit.

Some ISAs also allow for flexibility—you can withdraw money and replace it within the same tax year without reducing your overall contribution limit.

Note: Not all providers or ISA types offer this, so it’s essential to check before making any withdrawals.

Benefits of ISAs

• Tax Efficiency: All ISAs provide a shelter from taxes, whether it’s interest, capital gains, or dividends. This can lead to significant savings, especially over the long term.
• Investment Flexibility: You can choose how to allocate your contributions across different types of ISAs depending on your risk tolerance and financial goals.
• Long-Term Savings: ISAs are excellent for long-term savings goals, such as retirement, purchasing a home, or building a financial safety net.
• Short-Term Savings: For short-term goals and emergency savings, the Cash ISA works well.

Drawbacks of ISAs

• Contribution Limits: The annual limit of £20,000 means there’s a cap on how much you can save tax-free each year, which might not be sufficient for high-net-worth individuals. Also, the Lifetime ISA comes with an even lower limit.
• Risk in Investment ISAs: You are not protected from risk just because you do your investments (e.g. bying stocks) in an ISA. There is a possibility of losing money if the market goes against you.
• Limited Access to Lifetime ISA Funds: The Lifetime ISA has restrictions, particularly on withdrawals, which makes it less flexible. You can still make a withdrawal even if you do not fullfil the requirements, but you will have to pay a penalty which essentially takes away the bonus money. This is important to remember if you are saving and investing in a Lifetime ISA – some of the money in that account is only availabe to you if you make an approved withdrawal, otherwise it will vanish in the form of a penalty. This needs to be taken into account when you make financial decisions.

Can You Hold an ISA If You Move Abroad?

Yes, you can hold your existing ISA if you move abroad, but there are limitations. If you’ve already opened an ISA while you were a UK resident, you can still keep it, and any existing funds will continue to benefit from the tax-free interest or returns within the account. However, once you become a non-UK resident, you generally cannot contribute new funds to your ISA. The account will remain tax-advantaged in the UK, but you won’t be able to deposit more money into it while living outside the country.

Key Points for ISA Holders Moving Abroad

1. You Can’t Contribute: If you move abroad, you cannot contribute to your ISA while you are not a UK resident. You can only resume contributions if you return and become a UK tax resident again.
2. Existing ISAs Remain Tax-Free: The funds in your ISA will continue to grow free of UK taxes on interest, dividends, or capital gains, even while you’re abroad.
3. No New ISA Accounts: Non-UK residents cannot open new ISAs. You can only maintain the ISAs you opened while you were a UK resident.
4. Returning to the UK: If you move back to the UK and regain UK tax residency, you can begin contributing to your ISA again. The contribution limits will apply based on the tax year you resume contributions.

Tax Implications in Your New Country of Residence

Even though the ISA remains tax-free in the UK, the tax treatment of your ISA may change in your new country of residence. Many countries may tax the gains or interest you earn on your ISA, as they do not recognize the UK’s tax-free treatment. For example:

• In the US, ISAs are generally treated as taxable accounts, meaning that interest, dividends, and capital gains may be subject to US tax, and you would need to declare them on your US tax return.
• In the EU or other countries, local tax rules will determine whether your ISA is subject to local taxation, so it’s important to check with a tax advisor in your country of residence.

Dual Taxation and Double Taxation Agreements

If your new country has a Double Taxation Agreement (DTA) with the UK, you may be able to avoid being taxed twice on your ISA earnings. These agreements often prevent you from paying tax on the same income in both countries, but you would need to declare your UK-based ISA in the country where you now live and possibly claim relief.

Alternatives to ISAs for Non-UK Residents

If you’re a non-UK resident and no longer able to contribute to your ISA, there are other tax-advantaged or efficient investment options you can consider in your new country of residence:

1. Offshore Investment Accounts: Some banks and investment platforms offer offshore investment accounts for expats. These are typically located in tax-friendly jurisdictions like the Channel Islands or Isle of Man. While they may not be entirely tax-free, they often provide more favorable tax treatment than onshore accounts.
2. Tax-Efficient Investment Options: Depending on your new country, you might have access to local tax-advantaged savings accounts. For example:
   • 401(k) or Roth IRA in the US.
   • Tax-Free Savings Accounts (TFSAs) in Canada.
   • Superannuation in Australia.
3. Investment Platforms: You can invest in global financial markets through online brokers, though the tax treatment on any returns will depend on your country’s tax laws.

What Happens When You Return to the UK?

If you return to the UK and re-establish yourself as a UK tax resident, you can begin contributing to your ISA again. The ISA annual contribution limit will apply for the tax year in which you become a UK resident. For example, the contribution limit for the 2023/24 tax year is £20,000 across all ISA types (Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, and Lifetime ISA).

Your existing ISA will remain intact, and any new contributions will once again be tax-free in the UK.

Similar savings account outside of the UK

Several countries offer tax-advantaged savings and investment accounts similar to the UK’s Individual Savings Accounts (ISA), designed to encourage individuals to save and invest by providing tax-free or tax-deferred growth. While the specifics of these accounts differ by country, they generally allow people to invest or save money with certain tax benefits. Below is a comparison of accounts similar to ISAs in different countries.

1. United States: Roth IRA and 401(k)

• Roth IRA (Individual Retirement Account): The Roth IRA is similar to a Stocks & Shares ISA in that contributions are made with post-tax income, but the account grows tax-free. Withdrawals in retirement are also tax-free, as long as certain conditions are met.
  • Contributions: Not tax-deductible (you contribute post-tax income).
  • Growth and Withdrawals: Earnings grow tax-free, and withdrawals in retirement are tax-free.
  • Annual Contribution Limit: $6,500 for 2023 (or $7,500 if aged 50 or older).
  • Eligibility: Available to anyone with income below a certain threshold.
• 401(k): A 401(k) is an employer-sponsored retirement plan in the US, somewhat akin to the Lifetime ISA in terms of retirement savings, though it’s primarily designed for long-term retirement saving with tax-deferred growth.
  • Contributions: Tax-deferred (you don’t pay taxes upfront, but withdrawals in retirement are taxed).
  • Employer Match: Many employers match employee contributions, which is a big incentive.
  • Annual Contribution Limit: $22,500 for 2023 (or $30,000 if aged 50 or older).

2. Canada: Tax-Free Savings Account (TFSA)

• Tax-Free Savings Account (TFSA): The TFSA is very similar to the UK’s ISA. Any interest, dividends, or capital gains earned in the account are not taxed, and withdrawals are completely tax-free.
  • Contributions: Not tax-deductible (contribute post-tax money).
  • Growth and Withdrawals: Tax-free growth and tax-free withdrawals at any time.
  • Annual Contribution Limit: CAD 6,500 for 2023.
  • Eligibility: Available to all Canadian residents aged 18 and over.
  • Flexibility: You can re-contribute any amount you withdraw in future years.

3. Australia: Superannuation and Retirement Savings Accounts

• Superannuation (Super): In Australia, Superannuation is a compulsory retirement savings account. It’s designed more like a pension plan but shares some similarities with ISAs in terms of tax benefits.
  • Contributions: Made by both employers and individuals (self-managed super funds are an option for direct investment control).
  • Tax on Contributions: Contributions are taxed at a concessional rate (15%).
  • Growth: Earnings are taxed at a reduced rate (15%), but after the age of 60, withdrawals are typically tax-free.
  • Eligibility: Any employed individual, with compulsory employer contributions.

Australia does not have a direct equivalent to the TFSA or ISA for general, non-retirement savings.

4. New Zealand: KiwiSaver

• KiwiSaver: KiwiSaver is New Zealand’s voluntary savings initiative for retirement, akin to a Lifetime ISA in the UK.
  • Contributions: Individuals and employers contribute, with government incentives for certain levels of contribution.
  • Growth and Withdrawals: Investment growth is taxed, but it is designed to build up retirement savings, and you can withdraw for a first home purchase under certain conditions.
  • Withdrawals: Funds can be accessed at age 65 or used for a first home purchase.

5. Germany: Riester Pension and Rürup Pension

• Riester Pension: This is a retirement savings plan subsidized by the German government, with both tax relief and bonuses available.
  • Contributions: Partially subsidized by the government, with contributions being tax-deductible up to a limit.
  • Growth: Tax-deferred until retirement.
  • Withdrawals: Withdrawals are taxed at retirement but at a typically lower rate than during working years.
• Rürup Pension: This plan is geared toward the self-employed and higher earners, offering significant tax advantages.
  • Contributions: Tax-deductible up to a certain threshold.
  • Growth: Tax-deferred.
  • Withdrawals: Taxed upon retirement, similar to the Riester Pension.

6. France: Plan d’Épargne en Actions (PEA)

• Plan d’Épargne en Actions (PEA): This is a tax-efficient investment account in France that encourages long-term investment in European stocks.
  • Contributions: Contributions are made with after-tax money.
  • Growth: Gains and dividends are tax-free after five years.
  • Annual Contribution Limit: EUR 150,000 for individuals.
  • Withdrawals: You must hold the account for at least five years to benefit from the tax-free status.
• Assurance Vie: This is another popular long-term investment product, similar to a life insurance savings plan, that offers tax benefits after holding for eight years.
  • Contributions: Made with after-tax income.
  • Growth: Tax-advantaged, with lower tax rates on gains after 8 years.
  • Withdrawals: Partial withdrawals are allowed with tax advantages.

7. Sweden: Investeringssparkonto (ISK)

• Investeringssparkonto (ISK): Sweden offers the Investeringssparkonto (ISK), which is a tax-efficient investment account similar to the UK’s Stocks & Shares ISA. The ISK account allows individuals to invest in a variety of financial instruments, such as stocks, mutual funds, and ETFs, with favorable tax treatment.
  • Contributions: Contributions are made with post-tax income.
  • Growth: Instead of paying capital gains tax on profits, ISK account holders pay a low flat tax on the total value of the account each year. This tax is based on the government-set benchmark interest rate (also called the “standardized income”), which is often more favorable than the standard capital gains tax.
  • Withdrawals: Withdrawals can be made tax-free. Since taxes are paid annually on the account’s value, there is no additional tax on withdrawals, making it flexible for both long-term and short-term saving.
  • Eligibility: Available to Swedish residents.

8. Japan: Nippon Individual Savings Account (NISA)

• Nippon Individual Savings Account (NISA): Similar to the UK’s ISA, NISA allows Japanese residents to invest in stocks and mutual funds without paying taxes on the gains.
  • Contributions: Made with post-tax money.
  • Growth: Tax-free growth on investments for up to five years.
  • Annual Contribution Limit: JPY 1.2 million (around $10,000).
  • Eligibility: Available to all residents of Japan.

9. Singapore: Supplementary Retirement Scheme (SRS)

• Supplementary Retirement Scheme (SRS): The SRS is a voluntary savings scheme in Singapore that provides tax benefits for long-term retirement savings.
  • Contributions: Contributions are made with pre-tax income, allowing for tax deferrals.
  • Growth: Investment earnings grow tax-free until withdrawn.
  • Withdrawals: Withdrawals made after retirement age are taxed at a lower rate, while early withdrawals are taxed at a higher rate.