ISAs are tax-advantaged savings vehicles particular to the UK. Most individuals get an annual ISA allowance which they can save into an ISA (or combination of ISAs) each financial year without paying tax on any gains in an ISA – this includes interest on cash, dividends and capital gains.
The allowance is £20,000 for most ISAs in 2020/21.
There are four types of ISAs:
· Cash ISA: a regular ISA-eligible savings account where you can earn interest on your cash
· Stocks & Shares ISA: an account used for investment where you can buy funds, bonds, or individual shares
· Innovative Finance ISA: this could take a number of forms but normally involves some form of lending such as peer-to-peer lending; these are often higher-risk investments
· Lifetime ISA (LISA): you can put £4,000 into a LISA each year and the government will top this up by 25% as a bonus paid monthly (capped at £1,000 per year); this bonus is paid until you are 50; LISAs can be invested in cash or shares and bonds.