Investment ISA guide

Dive into the perks and possibilities of the investment ISA with our simple guide! ⭐📕

Authored on
06 Mar 2024
Getting started
Read time
  9 minute read

Want to grow your money while keeping your tax payments low? Look no further than the individual savings account (ISA)!

These nifty savings or investment accounts offer some nice tax breaks, allowing you to hold onto more of your hard-earned cash. Plus, unlike pensions, you can dip into your ISA whenever you need without the hassle of declaring it on your tax returns. 📜

Think of an ISA as a 'wrapper' for your savings and investments, shielding them from capital gains and other pesky taxes on income and interest. But, there's a slight catch – there's a limit on how much you can squirrel away each year – £20,000 for the 2023/24 tax year. And you can't roll over any unused allowance from one year to the next. It's a use-it-or-lose-it kind of deal. 😯

Different types of ISAs 🌈

For some background info, let's take a quick stroll through the ISA family.

Investment ISAs (aka stocks and shares ISA) 📈

These gems can hold a variety of investments, from stocks and shares to bonds and funds. While there's a risk of losing some or all of your investment value, investing gives you the chance to outshine the returns from interest on cash. Some investment ISAs let experts handle your investments, while others hand you the reins. 🏇

Lifetime ISAs 🏡

If you're between 18 and 39, you can open a lifetime ISA, and up until you're 50 you can pop up to £4,000 each year into one of these. And guess what? The government chips in with a sweet 25% bonus, up to £1,000 a year! But here's the catch – if you dip into your LISA before hitting the ripe age of 60, or for anything other than buying your first home, or if you're terminally ill, brace yourself for a government withdrawal charge of 25% on what you take out. So, keep that cash cosy in there until you really need it!

The lifetime ISA is like the upgraded version of the help-to-buy ISA (H2B). With the H2B ISA, you're limited to properties below £250,000 (unless you're in London, where it's £450,000). But With the LISA, you're free to aim higher – you can snag a place worth up to £450,000, no matter where you are.

This info is for those that currently have a H2B - you can't actually open these anymore. If you do have one, you can always transfer it to a lifetime ISA!

Cash ISAs 💰

Perfect for cash interest lovers, these accounts shelter your money from the taxman. They're hassle-free and safe, but watch out – if interest rates dip below inflation, your money's real value could still shrink. To find out more about inflation, check out this awesome article that spills the tea.

Junior ISAs 🧒

Because why should the little ones be excluded from saving and investing? A junior ISA is an account for children, replacing the older Child Trust Funds. With deposit limits set at £9,000 for 2023/24, anyone can contribute – even the adoring grandparents. The money stays locked until the child turns 18, at which point they're free to do as they please.

Help-to-buy ISAs 🏠

These are for the soon-to-be first-time buyers. Save up to £12,000 and receive a 25% bonus when you use it to purchase your first home. But beware, there's a maximum deposit of £1,000 initially, and after that, you can only sprinkle in up to £200 a month, which would mean it would take the best part of 5 years to save the full £12,000. And remember, your humble abode mustn't exceed £250,000 (outside London) or £450,000 (in London) to qualify.

Innovative finance ISAs 💷

For the adventurous, these ISAs let you dabble in peer-to-peer lending and crowdfunding. But be warned – it's riskier territory with no safety net from the Financial Services Compensation Scheme. ⚡

Who can join the ISA club?

  • You need to be at least 18 years old to open an ISA.
  • UK residency is a must. That means England, Scotland, Wales, and Northern Ireland. Sorry, Channel Islands and Isle of Man, you're not in this club.
  • If you're outside the UK but working for the Crown (like a diplomat or a member of the armed forces), or you're married to one, you're still in luck.

Oh, and don’t forget about the £20,000 annual ISA subscription allowance that covers all your ISAs. Let’s say you’ve already stashed £10,000 into an investment ISA for the year; that means only £10,000 can be added to a different investment ISA or cash ISA during that same tax year. How you divvy up your cash between your different ISAs is totally up to you (just keep in mind that subscriptions to lifetime ISAs and help-to-buy ISAs are restricted).

Tax benefits of an investment ISA 💸

First off, with an ISA, you kiss goodbye to extra income tax on any dividends from stocks and shares or the interest from any corporate bonds. That means more money staying in your pocket!

And the cherry on top – when you decide to cash in on your ISA investments, you won’t see a penny snatched up by capital gains tax (the tax you pay on any increase in investment value). So, as your ISA grows, you can rest assured that your profits are all yours to keep! 🎉

But hold your horses, with an ISA, you can't use any losses from your ISA investments to offset the tax bill on any gains you make with investments outside your ISA. It’s a one-way street for tax benefits, but it’s still a pretty good deal overall!

Oh, and another heads-up – when you withdraw money from your ISA, you may not be able to put the same amount back in during the same tax year.

Tax rules can change faster than the English weather in spring, so keep an ear out for any updates on ISA tax perks. But for now, enjoy the tax-free ride! 🚀

Subbing to an investment ISA

Paying into an ISA is a piece of cake – just make sure you don’t go over the subscription allowance. Right now, it’s £20,000, and every autumn, the government spills the beans on whether the allowance will change for the following tax year.

Aside from certain schemes that accept subscriptions from employee share schemes, you can only put cash into an investment ISA – whether it’s in lump sums or regular payments. That means no transferring investments into an ISA from another type of account. 🚫

From 6 April 2024, you are able to pay into multiple ISAs of the same type in a tax year (excluding lifetime ISAs), provided you don't bust the overall ISA allowance.

Shuffling around with bed and ISA 🛏

If you’re a bit tight on spare cash to invest, but you're keen to shield more of your investments from the taxman, try a bed and ISA. It's like musical chairs for your investments – you sell what you hold outside of an ISA and swiftly buy them back inside at the open market price. Just be aware, depending on your tax setup, a bed and ISA could land you with capital gains tax and stamp duty costs. 😬

Cash-out strategy – withdrawals

Need some cash? No worries! You can withdraw money from your ISA whenever you fancy, just check out the ISA manager’s terms and conditions. And thanks to the ISA’s tax perks, you won’t owe a single penny in tax on any money you take out. 💰

But hold up! Unless you’ve got a flexible ISA, withdrawing cash won’t magically free up any of your already-used ISA allowance. So if you’ve maxed out your £20,000 allowance and then make a cheeky withdrawal, tough luck – no more subscriptions for you that tax year, regardless of your withdrawals. For instance, if you pop £15,000 into your ISA and then take out £10,000, you’ll only be able to put £5,000 back in (a Dodl ISA is not a flexible ISA). 🛑

Transferring your investment ISA 🔄

Moving your investment ISA between different providers is as easy as pie. You can decide whether to transfer the whole shebang or just part of it, although some providers are a bit picky and only allow full transfers.

Don’t worry, though – a transferred investment ISA keeps all the same tax advantages, and any assets you bring in from another ISA don’t count as fresh subscriptions. 💼

Oops! What if I accidentally break the ISA rules? 😬

So, you know the golden rule: you can't pay more than the yearly allowance into your ISAs (£20k). But what if, by some twist of fate, you accidentally do? Well, HMRC keeps an eye on these things. Each year, they get reports from ISA managers like us. If they spot any slip-ups, they might ask us to make some changes or even close the ISA.

Worst-case scenario, you might lose that sweet tax-protected status of your ISA, and yeah, you'd have to cough up any tax owed. 🙈

What happens to my investment ISA when I die? 😢

Let's talk about what happens to your Dodl ISA when you pass. Don't worry, it's not as grim as it sounds…

If you're a holder of an AJ Bell Dodl ISA and you pass away, your ISA keeps its tax perks until one of three things happen: either the administration of your estate gets sorted out, three years pass, or the account is closed.

If your spouse survives you, they get a little bonus. They can top up their own ISA with the higher of either the value of your ISA when you passed or the value when the account is closed. Plus, any money-making magic your investments do after you're gone (like dividends or investment gains) is still tax-free for them! 💖


Think you’re ready to open your low-cost, little effort investment ISA with Dodl?



🔔 Always remember, the value of your investments can go down as well as up. Dodl doesn’t give advice, so if you’re unsure about investing, it’s always best to speak to a financial adviser.


It's important to know

You have to be a UK resident for tax purposes to open an account with Dodl.

The past performance of investments isn't an indicator of their future performance and their value can go down as well as up. This means you could get back less than you originally invested. 

Dodl doesn’t offer any advice so if you’re not sure about the risks involved with investing, you should speak to a suitable financial adviser. 

How you're taxed depends on your circumstances, and tax rules can change in future.

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