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UK ISA Accounts and Rules Explained — 2019 Edition

ISA’s have become increasingly popular over the last few years, the majority of people have one for their cash savings. But, did you know you can save more than cash? During this article, we will cover the four types of ISA’s; and their uses and restrictions.

An ISA (Individual Savings Account) is an account that an individual can save up to an amount of money into per tax year (April 6th to April 5th) tax-free (Annual tax-free allowance). Also, any money earned through income/capital gains from investments made in the account is tax-free.

Each year a new tax-free allowance is decided for ISA’s, for 2019 it is £20,000.

Now we know what an ISA is, it’s time to look at the different types of ISA’s available, they are Cash, Stocks and Shares, Innovative Finance and Lifetime. Below we explain what each one is and how they differ.


A Cash ISA is a tax-free savings account that many banks and financial institutions offer to their customers as a way to save money. Although this benefit has been brought into question with the introduction of the PSA (Personal Savings Allowance), Cash ISA’s are still a great savings option.

Cash ISA accounts also have interest rates so you can earn money from what you save.

Stocks and Shares

Stocks and Shares ISA’s are a viable option for individuals who are interested in investing in the stock market as all money earned through interest is sheltered from tax. Typically, investing money is a better way of earning money than relying on the interest rate of your standard account but remember stock prices can rise and fall so you may get back less than you initially invested.

Innovative Finance

Innovative Finance ISA’s are unlike the previous ISA’s because they contain peer-to-peer loans. A peer-to-peer loan is where individuals who are willing to lend money (investors) are matched up with individuals or businesses that require money (borrowers) without going through banks. This often leads to investors earning higher interest rates than in traditional savings account while having a bit more stability than relying on share prices.


The final ISA is the Lifetime ISA which is a relatively new concept in comparison to the other ISA’s. A Lifetime ISA allows an individual to save up to £4000 per tax year plus a 25% government bonus meaning overall £5000 is saved per year. Lifetime ISA’s allow for this to be stored in cash, invested into the stock market or a combination of the two.

You can carry on saving money and claiming the government bonus up to the age of 50 (you can only open an account up to 40). However, once you turn 50 you will be unable to pay any more into the account or earn the government bonus but your account will continue to earn any interest or investment returns.

All the accounts have rules/requirements that need to be met. These are explained below in more detail.


All of the ISA’s have a minimum age requirement of 18 (except the Cash ISA where you can be 16). None of the ISA’s have a maximum age except for the Lifetime ISA (40).

Residential Requirements

To open an ISA account you must be a UK resident or a Crown servant (diplomatic or overseas civil service) or their spouse or civil partner if they don’t live in the UK.

Paying into ISA’s

Per tax year you may only pay into one of each type of ISA. This can be in any combination and amount up to the tax-free allowance for that year. Below are some examples of how you can combine your ISA’s to use your annual tax-free allowance.

Example 1:

£10,000 in Cash, £6000 in Stocks and Shares and £4000 in a Lifetime ISA making a total of £20,000.

Example 2:

£15,000 in Stocks and Shares, £3000 in Innovative Finance and £2000 in Cash making a total of £20,000.

Withdrawing Money (Exc. Lifetime ISA)

You can withdraw money from an ISA at any time without losing any tax benefits (subject to the terms of your own ISA). However, ISA’s can be broken down into two categories, a flexible ISA and a non-flexible ISA.

A flexible ISA means you can withdraw money from an ISA and then replace it within the same tax-year without reducing your tax-free allowance. While with a non-flexible ISA you lose the tax-free allowance once you withdraw the money. See the example from below:


Your allowance is £20,000 and you put £10,000 into an ISA during the 2019 to 2020 tax year. You then take out £3,000.

The amount you can now put in during the same tax year is:

£13,000 if your ISA is flexible (the remaining allowance of £10,000 plus the £3,000 you took out)

£10,000 if your ISA is not flexible (just the remaining allowance)

Withdrawing money (Lifetime ISA)

To withdraw money from a Lifetime ISA without any financial penalties one of the following conditions must be met:

  • Buying your first home
  • Aged 60 or over
  • Terminally ill, with less than 12 months to live

If you want to withdraw money for any other reason from a Lifetime ISA you will pay a 25% fee on the amount withdrawn, this fee claims back the government bonus plus an extra fee, see the example below for more.


If you saved £4000 in a Lifetime ISA, with the 25% government bonus you would have £5000 in total. Then if you decided to withdraw the full £5000, you would be charged a 25% fee on the amount meaning you’d pay £1250 in fees to the government, leaving you with £3750, less than your original amount.

In this article, we have covered the types of ISA’s available, what makes each one unique and the differences between them, along with the rules and conditions that apply to each account.

Hopefully, you now understand more about the ISA’s on offer and have a better idea of which one is better suited to your individual circumstances.

If you have any questions regarding the accounts and the rules relating to them then please leave a comment and I’ll try my best to answer it.

Finally, if you have enjoyed this article or have found it helpful; please consider following Penny Sense. Also, if you know someone who might benefit from this post please share it with them, I would greatly appreciate it.

Disclaimer: Please remember this is only a guide and Penny Sense is not a financial or tax advisor. Please consult HMRC or a personal financial or tax advisor for more personal advice.

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Coner Murphy

Fullstack Developer | Technical Writer | Freelancer 👩‍💻 Tweets about Web Dev, Tech, Entrepreneurship 📈 Building In Public ➡