How Do ISAs Work Now? A Guide for Savvy UK Savers

Everything You Need to Know About ISAs in 2024/25
ISAs (Individual Savings Accounts) are one of the best ways to grow your money tax-free in the UK, but with recent rule changes, many people are wondering: How do ISAs work now? Whether you’re saving for the short term, investing for the future, or buying a home, this guide will break down everything you need to know.

What Are ISAs and How Do They Work?

An ISA (Individual Savings Account) is a special type of account that allows you to save or invest money without paying tax on the interest, dividends, or capital gains.

There are four main types of ISAs:

Cash ISA – A savings account with tax-free interest. Best for short-term savings.
Stocks & Shares ISA – Invest in the stock market without paying capital gains tax. Best for long-term growth.
Lifetime ISA (LISA) – Save for a first home or retirement with a 25% government bonus (up to £1,000 per year).
Junior ISA (JISA) – A tax-free savings account for children.

ISA Allowance: Each tax year, you can save/invest up to £20,000 across all your ISAs combined.

How Have ISA Rules Changed for the 2024/25 Tax Year?

From April 2024, new ISA rules are making it easier to manage your savings:

Multiple ISAs Per Year: Previously, you could only pay into one type of ISA per year. Now, you can spread your allowance across multiple ISAs of the same type (e.g., two different Cash ISAs).
Simpler Transfers: You can now move money between different ISAs more flexibly within the tax year.
Higher Instant Access Rates: Banks are improving Cash ISA interest rates to compete with regular savings accounts.

These changes mean more flexibility and better savings opportunities for UK women looking to build financial security.

What ISA Changes Were Announced in the Autumn Budget?

Chancellor Jeremy Hunt’s Autumn Budget 2023 introduced more updates, including:

A New British ISA: A proposed “British ISA” offering a £5,000 additional allowance to invest in UK stocks.
More Flexibility in Withdrawals: Easier access to ISA funds without losing tax benefits.

The final details are expected to be confirmed later in 2024, so keep an eye out for updates.

Do I Have to Fill in a Tax Return for My ISAs?

No! One of the biggest benefits of an ISA is that you don’t need to declare it on a tax return.

All interest, dividends, and profits earned within an ISA are completely tax-free, so there’s no paperwork or reporting required.

Are ISAs Exempt from Inheritance Tax?

❌ No, ISAs are NOT automatically exempt from Inheritance Tax (IHT).

If you pass away, your ISA savings will be included in your estate and could be taxed at 40% if your total estate exceeds £325,000.

However, there are ways to protect your ISA from inheritance tax:

Spouse Exemption: If you’re married or in a civil partnership, your partner can inherit your ISA tax-free.
Invest in AIM Shares: Some Stocks & Shares ISAs hold AIM-listed stocks that qualify for IHT relief.
Use Trusts or Gifts: Seeking financial advice on estate planning can help.

Which ISA Is Best for Me?

The right ISA depends on your financial goals. Here’s a quick guide:

For short-term savings? → Cash ISA (safe, easy access)
📈 For long-term wealth building? → Stocks & Shares ISA (higher potential returns)
Saving for a home or retirement? → Lifetime ISA (free government bonus)
For your child’s future? → Junior ISA (tax-free until they turn 18)

Tip: If you’re risk-averse, stick with a Cash ISA. If you’re comfortable with market ups and downs, a Stocks & Shares ISA might be better.

Can You Lose Money in an ISA?

Cash ISAs: Safe, but your savings could lose value due to inflation.
Stocks & Shares ISAs: Investments can go up or down, meaning you could lose money—but historically, the market grows over time.
Lifetime ISAs: If you withdraw before age 60 and not for a first home, you’ll pay a 25% penalty (which means you lose some of your own money).

Key Takeaway: The risk depends on where you put your money—higher potential returns usually come with more risk.

Final Thoughts: Make the Most of Your ISA

ISAs remain one of the best ways to save and invest tax-free in the UK. The recent changes mean more flexibility, better rates, and new investment opportunities.

Which type of ISA do you use—or are thinking about opening? Let us know in the comments