ISA Mortgages

Investing in an ISA

Putting money into an ISA is a straightforward matter of selecting the most appropriate account for your needs and then transferring the cash from your other account into the ISA, just as you would with any other transfer.

Every tax year, any individual over the age of 16 may invest up to £7000 in an ISA, although only £3,000 of this can be in cash. Typically, with a Maxi ISA, the investor will put the entire £7,000 into shares; with a Mini ISA it is more common for a cash ISA to the value of £3,000 to be taken with one provider and a further £4,000 invested in a share ISA, which may or may not be with the same provider.

The maximum that can be invested in any one tax year is £7,000. It is common practice for those who are in a position to save, to place £3,000 into a cash ISA, immediately at the beginning of a new tax year. Many investors will also take a share ISA to make up the entire balance. As all gains made to the value of the ISA are tax free, this is a very efficient way to save, particularly for those who are in the higher income tax bracket and would otherwise be charged 40 percent on any investment income.

Managing an ISA
ISAs are remarkably flexible and are available to suit just about every investment need. As an ISA is simply a wrapper bank account, each will have its own terms and conditions. Some of the accounts are for a fixed period of time and offer generally favourable rates although, normally, they also incur penalties for early withdrawal. Other accounts allow withdrawal at any time but may not offer the same interest rate returns.

Withdrawing from an ISA
A common misconception about ISAs is that there are tax penalties for early withdrawal. This is not actually the case and any income received prior to the withdrawal will be tax free. Where the penalty does come into play, however, is in relation to the saving limit of £7,000. This limit refers to the amount that is PAID IN and does not take account of any withdrawals. Therefore, if you open a cash ISA of £3,000, at the beginning of the tax year, and then withdraw say £1,000 a few months later, you will not be able to ‘top’ up the amount to £3,000 at any point during the tax year.

Summary
One person can invest up to £7,000 a year in ISAs;
this can be up to a maximum £3,000 in cash, the balance can be invested in shares;
as with different bank accounts, all ISA accounts also differ; all have their own terms and conditions such as notice needed to withdraw and interest rates offered;
there is no strict tax penalty for withdrawing, although further investments cannot be made to top up the account during the same tax year.