What are the seven different types of ISA available?

Chris Torney / 09 May 2016 ( 05 April 2019 )

When it comes to saving into an ISA (individual savings account), there has never been so much choice. We look at the seven types on offer.

How do you pick the right type of ISA? We explain how each of them works and what they have to offer.

1. Basic ISA

This is the most popular type of ISA and is used to shelter cash savings, as well as stock-market investments from both income and capital gains tax.

You have to be at least 16 years old to open one (18 in the case of shares or investment funds) and for the 2019/2020 tax year, up to £20,000 can be put into a basic ISA.

In the past, there have been stricter limits on how much of the basic ISA can be used for cash savings, but now the full amount can be used for cash. 

Interest on cash ISA accounts is free of income tax, while any gains made on stock-market investments are free of capital gains tax.

Given the tax advantages, a basic ISA should be most people’s first choice when it comes to putting money aside.

For more information on ISAs as an alternative saving option, please click here.

2. Junior ISA

Aimed at parents who want to save on their children’s behalf, the Junior ISA also allows money to be put into cash or shares and investment funds. But the annual limits are lower than on the basic ISA: at the moment, no more than £4,368 can be put into a Junior ISA every year. Again, savings interest and investment gains are not taxed.

Control of the money in a Junior ISA passes to the nominated child when they turn 16, but no withdrawals can be made until their 18th birthday. At this point, the ISA converts to a basic adult ISA.

Read Annie Shaw's guide to giving money to children

3. Inheritance ISA

This type of ISA is aimed at people whose partners had an ISA at the time of their death. It is available to anyone who has lost a husband, wife or civil partner since December 3, 2014.

The value of their ISA at the time they died is added to your own ISA allowance, which effectively means you get to inherit their savings or investments without facing any tax charges.

The Inheritance ISA must be opened within three years of the death, although this can be extended in cases where the estate is still being administered.

Can you inherit an ISA from your spouse?

4. Help To Buy ISA

This kind of ISA was introduced in a bid to help people take their first steps onto the property ladder. 

It allows individuals to save up to £200 a month into a tax-free deposit account with the government adding a bonus worth 25% (with a monthly maximum, therefore, of £50). In the first month, however, as much as £1,200 can be deposited.

The upper overall limit on the government bonus is £3,000: this would require £12,000 to be saved over the course of almost five years. 

The bonus is available on the condition that the money in the Help To Buy ISA is used to fund a deposit on a first property – the government pays the money on completion of the purchase. 

Help to Buy ISAs are available until 30 November 2019. After this date you can keep saving into existing Help To Buy ISAs until 30 November 2029. 

You must claim your bonus by 1 December 2030.

Find out more about how Help To Buy ISAs can help your children and grandchildren

5. Flexible ISA

In the past, withdrawals from basic ISAs have been subject to strict rules: any money taken out of an ISA cannot be re-deposited without eating in further to the annual allowance.

But the rules have now changed: if money is taken out of a Flexible ISA, it can be put back in the same financial year without you losing any of your tax-free allowance. 

This is especially useful for people who might want to access their cash savings from time to time.

Read Annie Shaw's guide to giving your ISAs a spring clean

6. Innovative Finance ISA

The government has recognised the growing popularity of alternative savings and investments, such as peer-to-peer loans and crowdfunding services, by creating a new ISA category.

This means that returns on such deals will be free of income and capital gains tax. The annual limit is the same as the basic ISA – £20,000 from April 2019.

Peer-to-peer lending involves lending money directly to other individuals: returns are better than on bank deposit accounts, but there is a risk you could lose money if borrowers default or miss repayments.

Crowdfunded investments tend to involve taking stakes in small, new companies and can be particularly risky, even when compared with stock-market investing.

What is crowdfunding and how does it work?

7. Lifetime ISA

The Lifetime ISA launched in April 2017 and is aimed at the under-40s. It allows up to £4,000 a year to be saved, with the government adding a 25% bonus.

The idea is that the Lifetime ISA should be used to help save for a deposit on a property, or for retirement as an alternative to a pension. Anyone aged between 18 and 40 can open one of these ISAs, and bonus payments will continue until the age of 50.

But the bonuses are only paid on the Lifetime ISA if the money is used to buy a first home or if it is withdrawn after the age of 60. Withdrawals for other purposes or before the holder’s 60th birthday will mean the government imposes a 25% penalty, which effectively offsets any bonus payments.

For more tips and useful information, browse our money articles.

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The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.