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When an individual saves or invests through an ISA, the returns (the income and the capital gains) that he or she receives from their savings or investment is subject to neither UK income tax nor capital gains tax.

There are two types of ISA: a cash ISA and a stocks and shares ISA.

Anyone born on or before 5 April 1960 is allowed to invest up to £10,200 in ISAs in any one tax year, of which £5,100 can be invested in one cash ISA and up to £5,100 in one stocks and shares ISA, or the full allowance of £10,200 can be invested in one stocks and shares ISA.

best isa deals 2012For individuals born after 5 April 1960, the maximum they are allowed to invest in ISAs in any one tax year is £7,200, of which £3,600 can be invested in one cash ISA and up to £3,600 in one stocks and shares ISA, or the full allowance of £7,200 can be invested in one stocks and shares ISA.

  • Providing the individual is resident in the UK for tax purposes, a cash ISA can be opened by anyone aged 16 or over; stocks and shares ISAs are available only to people aged 18 or over
  • HM Revenue & Customs (HMRC) do not need to know that an individual holds an ISA or ISAs
  • ISAs are bought through ISA managers (which are authorised by HMRC) such as banks, building societies and unit trusts: some managers offer either a cash ISA, or a stocks and share ISA, and some offer both
  • The cash ISA can be with one manager and the stocks and shares ISA with another, or both ISAs can be with the same manager
  • ISAs can be transferred between one ISA manager and another by asking the new ISA manager to arrange the transfer, rather than closing an ISA and reopening it elsewhere. ISAs must be transferred directly between ISA managers, otherwise some or all of the tax concessions will be lost
  • Cash ISAs can be transferred to another cash ISA or stocks and shares ISA, whereas stocks and shares ISAs can only be transferred to another stocks & shares ISA

Junior ISA

A Junior ISA is an individual savings account which allows parents (or anyone else with parental responsibility) to open an account, and contribute to it, on behalf of a child — providing the child does not already have a Child Trust Fund account. Junior ISAs are available to any child who is under 18 years of age and resident in the UK at the time the ISA is established.

The person who opens the account is responsible for managing it — i.e. keeping the paperwork and dealing with any modifications that need making such as registering a change of address or switching to do a different savings account or investment provider for example.

There are two types of Junior ISA: a cash ISA and a stocks and shares ISA. Up to £3,600 can be invested in one or the other, or the £3,600 can be divided between the two. Irrespective of how the £3,600 is apportioned, there’s no tax to pay on the returns from either type of ISA. It’s permissible to change to a different type of Junior ISA or to a different savings or investment provider at any time.

Although all the money in the Junior ISA always belongs to the child, he or she is not able to access that money until they are 18 years of age, the only exceptions being when a child becomes terminally ill or dies. At age 18, it’s the child decision what they do with the funds in their ISA or ISAs. If no money is taken out, the Junior ISA then becomes an ‘adult’ ISA. Money can be transferred between Junior cash and equity ISAs but not between a Junior ISA and an adult ISA, nor can funds be moved between a Junior ISA and a Child Trust Fund account.
Even if the child already has a Junior ISA, at age sixteen, they can also open an adult cash ISA.