ISAs Explained

An ISA (or Individual Savings Account) may seem confusing but it's simply a tax-free savings account. That means you don’t pay income tax on the interest your savings earn. Here's some useful information, explaining all you need to know about ISAs.  


A guide to ISAs

ISA allowance

You can only put a certain amount of money in an ISA each tax year. This is called an ISA allowance.

The ISA allowance for the 2022/2023 tax year is £20,000.

You can use your ISA allowance right up until the end of the tax year - midnight on the 5th April. You can put the full amount in up until the last day of the tax year, and then the new allowance will begin on the first day of the new tax year.

You can also split your ISA allowance between different ISAs, but you can only pay into one of each type of ISA per tax year.

Flexible ISAs

An ISA can be "flexible". This means that you can take money out of your ISA and replace it without using up more of your annual ISA allowance.

If your ISA isn't flexible, all deposits will count towards your annual ISA allowance, even if you've withdrawn money from your ISA at some point.

Leeds Building Society doesn't offer flexible ISAs.

Withdrawing money from an ISA

Unless you have a flexible ISA, withdrawing money won't give you back any of your ISA allowance. For example, if you deposited £10,000 and then decided to withdraw £200, you'll still have used £10,000 of your ISA allowance. So any amount you take out of your account would lose its tax-free benefit.

If you have a fixed rate ISA, there may be limits on how many withdrawals you can make from it in a year. Check the terms and conditions of your ISA to find out if and how often withdrawals are permitted.


You will usually have a few options when your ISA matures, depending on your provider and your specific savings product. Standard options are moving the funds in your ISA to:

  • A different, non-ISA account with the same provider. Your money will normally lose its tax-free status if you do this.
  • A non-ISA account with a different provider. Again, your money will normally lose its tax-free status if you do this.
  • Another ISA with the same provider.
  • Another ISA with a different provider. This is known as an ISA transfer.

You won't necessarily have all of these options. Again, it depends on your provider.

When your ISA matures, you can move all of the money in it to a new ISA. As long as the money you're moving is from a previous tax year, this won't count towards your annual ISA allowance, even if you have more money in your ISA than the allowance limit.

ISA transfers

You can transfer your ISA to another provider as long as they accept transfers. To do this, you need to open your new ISA and fill in an ISA transfer form. The rest of the process is arranged between your current ISA provider and your new one.

If you want to transfer money you've put into your ISA that year, you have to transfer all of it. This is because you can only pay into - or "subscribe to" - one ISA per tax year. By moving all of the money you've paid into your ISA that year, you move your whole subscription.

If you want to transfer money you paid into your account in previous years, you can choose to transfer only some of it.

ISAs and the Personal Savings Allowance

The Personal Savings Allowance (PSA) lets you earn up to £1,000 in interest tax-free, if you're a basic-rate taxpayer.

The PSA applies to all savings accounts, not just ISAs.

The amount of tax-free interest you can earn is dependent on your tax rate. If you're in the higher 40% tax band you can earn £500 in savings interest tax-free. If you're in the additional 45% tax band you won't have a Personal Savings Allowance.

Whatever tax band you fall into, the interest on an ISA is completely tax-free. The tax-free interest from your ISA doesn't count towards your PSA.

If your total taxable income is less than £17,500, you don't pay tax on savings interest anyway.

Learn more about the Personal Savings Allowance.

Moving abroad

You can leave your ISA open if you move to another country. You won't be able to pay any more money into the ISA, but you'll still get tax-free interest on your savings.

Types of ISA

Cash ISA

Standard tax-free savings accounts. The features of a Cash ISA can vary, just like any other kind of savings account.

Stocks and Shares ISA

These ISAs work like Cash ISAs, except you're investing your money rather than putting it in a savings account. That means the value of your Stocks and Shares ISA can go up or down, depending on what happens to your investment. But any interest you do earn from a Stocks and Shares ISA is tax-free.

If you're not sure if this type of ISA is right for you, it's best to speak to a Financial Adviser.

Help to Buy ISA

Designed to help first time buyers save up a deposit to buy their first home. You can save up to £200 per month in a Help to Buy ISA (there's no minimum monthly deposit), with an initial deposit of £1,000.

Then, when you put a deposit on a property, the government will match 25% of what you've saved, up to a limit of £12,000.

That means if you save £12,000, the government will contribute an additional £3,000.

If you're buying a property with other people, each one of you can open a Help to Buy ISA. They're limited to one per person, not one per property.

Lifetime ISA

This can be used like a Help to Buy ISA or to save for retirement.

The government will match 25% of your Lifetime ISA savings. For example, If you save £4,000 each year, the government will give you an annual bonus of £1,000. You'll receive the bonus either when you put a deposit down on your first home or when you turn 60.

Innovative Finance ISA

These ISAs let you save with peer-to-peer lenders. They usually offer high interest rates, but may be seen as risky. Any losses to your savings aren't covered by the Financial Services Compensation Scheme.

Junior ISA

Junior ISAs allow parents to save money tax-free for their child. The Junior ISA allowance is £4,128.

The child gets control of the money in their Junior ISA at 16. When they turn 18, the account turns into a Cash ISA.

Inherited ISA allowance

This is essentially a second ISA allowance for people who have lost their wife, husband or civil partner. It is equal to the value of the deceased's ISA on the date of their death.

With an inherited ISA, you inherit the ISA allowance, not necessarily the money that's currently in the ISA. If your spouse donated the funds in their ISA to a charity, for example, you would still be entitled to an additional ISA allowance per tax year.

You have three years from the date of their death to apply for an Inheritance ISA.

The Inherited ISA allowance is also known as an additional permitted subscription.

This guide is intended as a summary only and does not constitute legal or financial advice by Leeds Building Society. No reliance should be placed on this guide and you must make your own decisions. We recommend that you seek legal and/or financial advice if you have any questions or queries.

Last updated: 6 April 2022.