ISAs: Tax benefits of ISAs explained


What is the Tax benefit of holding your Investments in an ISA, as opposed to any other account?

Arguably, the most relevant and most effective benefit is that when you come to withdraw the funds from the account they are not subject to Income Tax. Any growth in the investment is also immune to Capital Gains Tax. So, in summary, in an ISA your investments can grow tax-free or receive interest tax-free and then when you come to take them out, there is no Income Tax applied, regardless of the amount withdrawn.

Now you see why the government limits your contributions into an ISA to £20,000 per year! It is such a valuable tax-efficient account to have. Plus, you don’t have to declare it on your Tax Return, which is always a bonus.

One of the main things to remember about ISAs is that if you want to change your ISA provider do not withdraw the funds! As soon as funds are withdrawn, there is no guarantee that either the existing or the new provider will allow you to reinvest the full amount, as not all providers employ the flexible ISA rules that allow you to reinvest the money you withdraw in the same Tax Year.

For example, you have £100,000 in an ISA and you want to move it to a different provider. If you withdraw the funds in full to your bank account, the new provider may not employ flexible rules and may only allow you to invest any annual allowance that you have remaining (max. £20,000). The remaining £80,000 would have to be placed in a different account, which would likely be less Tax efficient.

If you want to change providers make sure that you do so by means of a transfer – this allows you to transfer the full amount of your existing ISA (no limit on the amount) to a new provider, but always check first that the new provider is willing to accept it.

One form of Taxation that used to be unavoidable with ISA’s was Inheritance Tax, however, even that is now possible so long as you have the appetite for a higher level of investment risk. You can now have an AIM (Alternative Investment Market) ISA, which would be exempt from Income Tax,  Capital Gains Tax, as well as Inheritance Tax once you’ve held it in those funds for a minimum of two years.

If you don’t have an ISA but think you should (you probably should at least consider it), contact the office on 01489 877 547 and we can see if it would be suitable for you.

Redwood is one of the Souths’ leading Pensions, Investments, Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of Estate Planning and Probate, we can advise on any situation. Join us at one of our Free Public Information Seminars: Book online Book Me A Place!Call us on 01489877 547 or Email info@redwoodfinancial.co.uk to book an obligation free Initial Meeting with us to review your financial planning needs.

Jasmine Lambert Chartered Financial Planner
Jasmine Lambert

Jasmine is the Managing Director and a Chartered Senior Financial Planner at Redwood Financial. She helps clients manage and grow their wealth and protect their estate. Jasmine also provides expert advice in our FREE Redwood Webinars, where you can learn more about Wills, Trusts and Estate Planning.

Redwood Financial is one of the south’s leading Investments, Pensions, Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of Estate Planning, Lasting Powers of Attorney, Probate, Pensions, Savings & Investments, we can advise on any situation.
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