An ISA (Individual Savings Account) is a tax-free savings account. Cash ISAs were introduced on 6 April 1999. Initially launched with a 10 year life span, cash ISAs have now been made a permanent feature of the savings landscape.

In the current tax year, ISAs allow individuals to save up to £10,200 (up to £5,100 in cash). This will increase to £10,680 (up to £5,340 in cash) for the 2011-2012 tax year. An advantage of an ISA is the income does not need to be declared on tax returns, which means for those aged 65 and over the income will not affect any age related personal allowance.

ISAs were introduced by the Labour government, replacing the earlier Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs), which continued to exist only for money already invested in them and for interplan transfers.

• Eligibility
• Applying for a cash ISA
• Taking out your money
• Switching a cash ISA
• Closing the cash ISA
• If the saver dies
• If the saver goes abroad  

Eligibility

To be eligible to subscribe to an ISA a saver must:

• Be an individual aged 16 or over for cash ISAs.
• Be a UK resident.
• Or, be performing duties as a crown employee serving overseas and being paid out of UK public revenue or be married to or in civil partnership with such a person.
• Or, in the case of an application for a cash ISA, not have subscribed to a stocks and shares ISA or another cash ISA in that tax year.
  
  

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Applying for a cash ISA  

• Most cash ISA applications can be made in branch, by post, online or by telephone.
• In most cases you’ll need to produce one of the following:
  • A photo driving licence.
  • A current UK/EU/EEA signed passport
  • Your EU/EEA National Insurance number.
    
    

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Taking Out Your Money  

• Money can be taken out at any time subject to the terms of the cash ISA. Some cash ISAs run for a fixed period and may impose a withdrawal charge in the form of deducted interest for early withdrawals.
• There are also ISAs which require notice of a withdrawal and not complying with the notice period can result in a loss of interest.
• If money is taken out, any that is put back later will count against the ISA limit for that year. For example, if £4,100 is invested in a cash ISA and £1,000 is withdrawn, only a further £1,000 could be invested, as this would bring the customer up to the maximum limit of £5,100.
  

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Switching a cash ISA

• Savers can switch their cash ISAs from one provider to another whenever they want to.
• They may switch their current year cash ISA balance and/or all or part of their previous years cash ISA balance.
• The entire account must be switched if the cash ISA contains money from the current tax year. Partial switching is only allowed on ISAs from previous tax years.
• Cash within a TESSA Only ISA is treated as a cash component and can be switched to a ‘normal’ cash ISA.
• When a cash ISA is moved, the old cash ISA must give the new cash ISA provider a notice in writing containing information and a declaration (a 'transfer form'). Best practice currently states that this should be completed within 15 working days.
•  The existing ISA provider can not stop you from switching but may have terms and conditions which make a charge for switching or require a minimum notice period.
• Switching an cash ISA will not affect how much you can contribute over the course of the year.
• The switch must be done between the two providers. If a saver moves the money manually, it will be treated as a withdrawal and they cannot invest this in an ISA if their limit has already been reached.
  
  

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Closing the cash ISA

• Subject to the individual ISA terms and conditions, savers may close their ISA at any time without loss of tax exemptions.
• If the saver decides to close their cash ISA, they cannot pay into another cash ISA of the same type for the rest of that tax year.
• If the cash ISA provider intends to stop managing the cash ISA, it must give notice of its intention to HMRC and to each investor not less than 30 calendar days before the intended date of cessation. The provider must also inform savers of their right to move their ISAs to another provider.
  
  

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If the saver dies

• If the saver dies, the tax-exempt status of the ISA ends.
  

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If the saver goes abroad

• If you start an ISA in the UK and then go abroad, you cannot carry on paying money into the ISA (unless you are a crown employee serving overseas, or married to, or the civil partner of such a person). However, you can keep your ISA and will still be eligible for the tax-free status of the balance held within the ISA.
  
  

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