ISA FAQs

What is an ISA?

An Individual Savings Account (ISA) is a tax-efficient savings and investment account that allows you to earn interest or returns without paying tax on them.

Who can apply for an ISA account?

To apply for an ISA account you must be a resident of the UK for tax purposes. This includes British citizens, residents of the Isle of Man, and the Channel Islands. You must be at least 16 years old to open a Cash ISA. For Stocks & Shares ISAs and Innovative Finance ISAs, you need to be at least 18 years old. To open a Lifetime ISA, you must be between 18 and 39 years old. You should have a National Insurance number, which helps to verify your identity and residency status.

What are the different types of ISAs?

The main types of ISAs include:

• Cash ISAs: Savings accounts with tax-free interest.
• Stocks & Shares ISAs: Investment accounts for stocks, bonds, and other assets with tax-free capital gains and dividends.
• Lifetime ISAs: Designed for first-time home buyers and retirement, offering a government bonus on contributions.
• Innovative Finance ISAs: Involve peer-to-peer lending and other alternative finance investments.
• Flexible Cash and Stocks & Shares ISAs: A flexible ISA allows you to withdraw money and replace it within the same tax year without affecting your annual allowance.

Please note that we currently offer a Flexible Stocks and Shares ISA only.

What is the annual ISA contribution limit?

For the tax year 2024/25, the annual contribution limit is £20,000. This total can be spread across different types of ISAs. For more information please visit  https://www.gov.uk/individual-savings-accounts 

How is a Stocks and Shares ISA different from a normal Cash ISA?

A Stocks and Shares ISA and a Cash ISA are two distinct types of Individual Savings Accounts, each with its own features, benefits, and risks.

A Cash ISA is a savings account where your money earns interest tax-free. It functions similarly to a traditional savings account, providing a stable and secure place to save cash. Cash ISAs are considered low-risk investments. Your capital is generally safe, especially since funds are protected under the Financial Services Compensation Scheme (FSCS) up to £85,000. However, the interest rates may be lower than inflation, which can erode purchasing power over time.The growth in a Cash ISA comes from the interest earned on the deposited amount. This interest is typically lower compared to the potential returns you may be able to obtain from investments in a Stocks and Shares ISA. Cash ISAs are more suitable for short-term savings goals where you may need access to your funds within a few years. They provide liquidity and stability.

In contrast, a Stocks and Shares ISA allows you to invest in a variety of assets, including stocks and exchange-traded funds (ETFs). The potential for higher returns comes with greater risk, as the value of investments can fluctuate. Stocks and Shares ISAs carry a higher risk than Cash ISAs due to market volatility. While they have the potential for greater long-term returns, there is also the possibility of losing money, particularly in the short term. Investors must be prepared for fluctuations in value. Growth in a Stocks and Shares ISA comes from capital gains (the increase in value of the investments) and dividends. Over the long term, equities and other assets can offer higher returns compared to traditional savings accounts. Stocks and Shares ISAs are better suited for medium- to long-term investment goals, typically five years or more. This allows time to ride out market fluctuations and benefit from compound growth.

Both types of ISAs allow you to grow your savings or investments tax-free. This means you won’t pay income tax on interest earned from a Cash ISA or capital gains tax on profits made within a Stocks and Shares ISA.

Both ISAs share the same annual contribution limit, which is £20,000 for the tax year 2024/25. You can split this allowance between a Cash ISA and a Stocks and Shares ISA, but the total contributions across all ISAs cannot exceed this limit.

You can also have multiple Stocks & Shares ISAs with different providers as long as the total amount deposited per tax year overall does not exceed the threshold. 

In summary, a Cash ISA is ideal for those seeking a safe, low-risk place to save cash, while a Stocks and Shares ISA is suited for investors willing to take on more risk for the potential of higher returns. 

What is the difference between a standard Stocks and Shares ISA and a flexible one?

The primary difference between a standard Stocks and Shares ISA and a flexible Stocks and Shares ISA lies in how withdrawals and replacements affect your annual contribution limit. 

• Standard Stocks and Shares ISA

If you withdraw money from a standard Stocks and Shares ISA, that amount is removed from your ISA balance, and it cannot be replaced within the same tax year without affecting your annual contribution limit.

You can contribute up to the annual ISA allowance (currently £20,000 for the 2023/24 tax year) across all ISAs. Withdrawals do not add back to this limit.

• Flexible Stocks and Shares ISA

In a flexible Stocks and Shares ISA, you can withdraw funds at any time. The key feature is that you can replace any amount you withdraw within the same tax year without affecting your annual contribution limit.

If you withdraw £1,000, you can contribute an additional £1,000 later in the same tax year without it counting against your £20,000 limit. This allows for greater flexibility in managing your investments.

When choosing between the two, consider your need for flexibility and how often you anticipate needing to access your funds.

What happens if I exceed the contribution limit?

If you exceed the ISA limit, the excess contributions may incur tax, and you may need to remove the excess amount from your ISA account.

Are ISA withdrawals tax-free?

Yes, any withdrawals from an ISA are tax-free, regardless of the type of ISA.

Can I have multiple ISAs?

Yes you can have multiple ISAs. There's no limit to the number of ISAs you can have, but you can't exceed your annual ISA allowance of £20,000. 

What is a flexible ISA?

A flexible ISA allows you to withdraw money and replace it within the same tax year without affecting your annual allowance.

What are the fees associated with ISAs?

0% commission equivalent up to £100 000 EUR turnover. Transactions above this limit will be charged a commission of 0.2% (min. 10 GBP). Please note 0.5% currency conversion cost may apply.

How do you open an ISA account with XTB?

In order to open a Flexible Stocks & Shares ISA account, you need to create a Real account with XTB in GBP. Please note, to open an ISA account you need to be a UK resident and provide your National Insurance number. 

How to create an account with XTB

At XTB we request clients to fill out an online application form either through the website or the mobile app. Within this application process, you will need to undertake a relevant assessment, consisting of 4 multiple choice questions. This step is essential to ensure your compatibility with the product.

Upon successful completion of the application, you will be prompted to submit Know Your Customer (KYC) documents, such as identification and proof of address, in order for us to authenticate your identity. Once the KYC process is finalised, your trading account will be established.

With the trading account active, you will gain unrestricted access to both the trading platform and the client office. This provides you with the opportunity to acquaint yourself with the software and, if desired, make an initial deposit to commence your trading activities. 

If you already have an account in GBP with XTB, please click the "Save" button and select “Flexible Stocks & Shares ISA.” Enter your National Insurance number in the correct format. If you need assistance obtaining your NI number, please contact HMRC. Once you’ve filled out all the required information, you’re all set! Top up your account and your ISA. Remember, it’s your responsibility to ensure you don’t exceed the annual limit across all ISA accounts.

Can I transfer my ISA?

XTB currently doesn’t permit ISA transfers (to XTB) but plans to do so in early 2025.