Go to main content
Archive Website of the UK government
Please note that this website has a UK government accesskeys system.
Main menu
Page menu
Money, tax and benefits
Saving and investing with ISAs
Individual Savings Accounts (ISAs) are tax-free savings accounts which means you do not have to declare any income from them. You can use an ISA to save cash, or invest in stocks and shares.
What can you save or invest in an ISA?
ISAs can be used to:
- save cash - the interest will be tax-free
- invest in shares or funds - any capital growth will be tax-free and there is no further tax to pay on any dividends you receive
Transferring money from cash ISAs to stocks and shares ISAs
If you have money saved from a previous tax year you can transfer some or all of the money from a cash ISA to a stocks and shares ISA without this affecting your annual ISA investment allowance.
Money saved in the current tax year:
- savers are able to transfer money saved in the current tax year from a cash ISA to a stocks and shares ISA, but they must transfer the whole amount saved in that tax year in that cash ISA up to the day of the transfer
- the money transferred is then treated as if it had been invested directly into the stocks and shares ISA in that tax year; the saver is then still able to save or invest the remainder of their £11,280 annual ISA investment limit in the tax year 2012-13, including up to £5,640 in a cash ISA
How much tax will you save?
Interest from savings:
- if you pay tax at the basic rate, outside an ISA you would usually pay 20 per cent tax (2012-13) on your savings interest
- if you pay tax at the higher rate, outside an ISA you would usually pay tax at 40 per cent on your savings interest
- if you pay tax at the additional rate, outside an ISA you would usually pay tax at 50 per cent on your savings interest
- if you pay the 'saving rate' of tax for savings, outside an ISA you would pay tax at 10 per cent on your savings interest
Dividend income:
- if you're a basic rate taxpayer inside or outside an ISA you pay tax at 10 per cent on dividend income; this is taken as a 'tax credit' before you receive the dividend and cannot be refunded for ISA investments
- if you're a higher or additional rate taxpayer you would normally pay tax on dividend income at 32.5 per cent or 42.5 per cent; in an ISA you won't get back the 10 per cent dividend tax credit element of this, but you will save by not having to pay any further tax
Capital Gains Tax savings:
If you make gains of more than £10,600 from the sale of shares and certain other assets in the tax year 2011-12 you would normally have to pay Capital Gains Tax. However, you do not have to pay any Capital Gains Tax on gains from an ISA. (But losses on ISA investments can't be used to reduce Capital Gains Tax on gains from investments outside the ISA.)
Can anyone pay into an ISA?
To pay into an ISA you must be:
- a UK resident or a Crown employee, such as a diplomat or member of the armed forces, who is working overseas but paid by the government or the husband, wife or civil partner of a Crown employee
- 16 or over for a cash ISA
- 18 or over for a stocks and shares ISA
An ISA must be in your name alone; you can't have a joint ISA.
How to find out more about ISAs
For more information about ISAs, you can contact HMRC's ISA Helpline.
