ISAs, PEPs and TESSAs Guide

ISAs (Individual Savings Accounts)

What Happens If…?

…I change my mind?

ISA managers offering some kinds of ISA may give you a ‘cooling off’ or cancellation period (usually 7 or 14 days), in which you can change your mind about buying. If you change your mind within that time you will be free to put money into an alternative ISA in the same tax year with the same or a different manager.

If you change your mind after that time, or in a case where there is no cancellation or cooling off period, you will still count as having put money into that ISA, and your choice of a new ISA will be restricted in the same tax year. However, you could transfer the existing ISA to another ISA manager.

…I want to take my money out?

You can take your money out at any time, without losing any tax benefits you have already built up. However, some ISAs may run for a fixed period or require notice of withdrawal, and you may lose some interest or a bonus if you withdraw early. In some cases there may also be a penalty if you surrender an ISA life insurance policy early.

With a stocks and shares or life insurance ISA you may not get back all the money you put in, particularly if you withdraw during the early years of an investment.

If you take money out, any that you put back later will count against the ISA limits for the year.

Denise opens a cash mini ISA with the sum of £2,500. A few weeks later she withdraws £2,000. Later on in the same year Denise decides to replace the money by putting new funds into the account. However she is only able to replace £500. This is because the annual subscription limit for a cash mini ISA account is £3,000 in each tax year, and Denise has already put in £2,500 when she first opened the account.

…I want to change the savings and investments in my ISA?

You can switch from one savings product or investment to another at any time within the same component, but a particular ISA may only allow certain savings or investments. If you want to include savings and investments that are not available for your ISA, you may have to transfer to another manager.

…I have a complaint?

The first step is to take it up with your ISA manager. They will have a complaints procedure, which should be able to help you.

If you are not happy with the answer you get, you can take the matter up with the Financial Ombudsman Service. The Ombudsman Service aims to resolve individual disputes between consumers and financial firms. The Ombudsman Service is free for consumers and is an informal alternative to the courts. You can call the Ombudsman Service on 0845 080 1800 (calls are charged at local rates).

…I pay into too many ISAs?

If, by mistake, you put money into more than one Maxi ISA, into a Maxi and a Mini ISA, or into more than one Mini ISA of the same type in the same tax year, then the payment into the second ISA is invalid, and you are not entitled to any tax relief on
investments held in the second ISA.

Note: You must tell the manager of the second ISA as soon as possible that it is invalid. You cannot correct this mistake by closing the first ISA. If you are unsure about what to do call the Inland Revenue helpline on 0845 604 1701 for advice (calls charged at local rates).

…I go abroad?

If you start an ISA in the UK and then go abroad, you cannot carryon putting money into the ISA (unless you are a Crown employee working overseas or the husband or wife of one of these people). However, you can keep your ISA and you will still get tax relief on investments held in the ISA. When you return you can start putting money in again (subject to the normal annual limits).

…I die?

Your ISA will end on the date of your death. There will be no tax to pay on income or capital gains up to that date, but your personal representatives will have to account for tax on any income or gains arising after your death.

The ISA manager will either sell the investments and pay the proceeds to your personal representatives (or a beneficiary of your estate) or transfer the investments directly into their hands. The terms and conditions of the ISA may specify which it will be.

An ISA life insurance policy will payout on your death. Your personal representatives will have to claim the death benefit. There will be no tax to pay on income or capital gains which arise before the insurer accepts the claim. However, your personal representatives will be taxed on any interest that is paid if there is then a delay in paying out the claim. The insurer will deduct tax at the lower rate before paying over the interest.

ISA investments form part of your estate for Inheritance Tax purposes.

What are the tax benefits?

  • You pay no tax on any of the income from your ISA savings and investments. This includes dividends, interest and bonuses.
  • You pay no tax on capital gains arising on your ISA investments (but note that this means that losses on ISA investments cannot be allowed for Capital Gains Tax purposes against capital gains outside your ISA).
  • Your ISA manager will arrange for tax credits attached to dividends from UK companies (which since April 1999 have had a value of 10 per cent) to be paid into your ISA until 5 April 2004. Dividends from companies based outside the UK do not carry a tax credit.
  • The insurer does not have to pay tax on income and capital gains on investments (including claiming tax credits on dividends from UK companies) used to back your ISA life insurance policies. You do not have to pay any tax when the policy pays out.
  • You can take your money out at any time without losing tax relief.
  • You do not have to declare income and capital gains from ISA savings and investments – or even tell your Tax Office that you have an ISA.
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