7 things you didn't know about Isas

Ask a savvy saver what an Isa means to them and they'll probably mention the £20,000 tax-free allowance. But the limit – which many customers are rushing to max out before it renews on 6 April – isn't the only good reason to open an Isa.

From flexible withdrawals and investment tricks, there are plenty of ways in which an Isa can help you grow your nest egg while reducing your tax bill from HMRC.

Here, Which? takes a look at seven lesser-known Isa perks savers can take advantage of.

1. They can help beat CGT and dividend tax

While opening a cash Isa will help shield your nest egg from income tax, a stocks and shares Isa can help you sidestep paying capital gains tax (CGT) on your investments. Like cash Isas, stocks and shares products let you invest up to £20,000 a year, without having to pay a penny in CGT. Plus any income such as interest or dividends will also be free from tax.

However, if you already hold investments, you can't transfer them into your Isa. Instead you can opt to sell them, transfer the money to your Isa, and use that cash to buy the investments back – a pair of deals known as a 'Bed and Isa'.

Bear in mind that there can be charges involved with buying and selling, and you'll generally have to pay slightly more to buy an asset than you'll receive when you sell it. There's also a chance that the price will go up between your selling and buying it back, which could cost you. But if the price falls, that could work to your advantage.

What's more, if you make a gain from selling the shares that exceeds your allowance (£6,000 in 2023-24), it could also trigger a CGT charge.

• Find out more: what is a stocks and shares Isa?

2. You can make flexible withdrawals

Flexible Isas were introduced in 2016 to prevent customers from being penalised if they need to access their savings. 

They allow you to withdraw funds from an Isa and replace it, without it affecting your annual Isa allowance – as long as you do so in the same tax year.

Flexible products are only available for cash and stocks and shares Isas. Banks and building societies, however, are under no obligation to provide flexible Isas, so you'll need to shop around if you really want one. Take a look at our guide to best cash Isas 2024 for help choosing the right provider.

3. Couples can inherit allowances

Since April 2015, spouses and civil partners can pass on their Isa savings tax-free when they die.

The surviving partner is entitled to an 'additional permitted subscription,' or APS allowance. This is a one-off additional Isa allowance equivalent to the value of the deceased person's Isa at the time of death.

• Find out more: cash Isa rules and allowances

4. They're becoming easier to switch

From 6 April, savers will be able to open and pay into multiple Isas of the same type annually. That will replace current rules that only let you put money into one of each type of Isa every tax year.

The change will enable savers to easily move between different providers and is intended to encourage competition. With cash Isas still enjoying record rates of 5% AER or more, this is good news for savers searching for higher returns.

• Find out more: 5 ways Isas are changing this year

5. You'll be able to do partial transfers

In 2024-25, new rules will also mean you can transfer part of your account balance from one Isa provider to another, no matter when the money was paid in. Under existing rules, you had to transfer your entire Isa of that type from the current tax year or nothing at all. 

The change means that you'll be able to keep some funds with your existing provider and retain that account.

6. There will be a higher allowance with the British Isa

Savers will soon be able to take advantage of a new type of stocks and shares Isa that will exclusively focus on UK-listed companies. 

The British Isa (also being referred to as a 'UK Isa') was unveiled by the Chancellor in the Spring Budget on 6 March and will reward savers with an additional £5,000 allowance on top of the existing Isa allowance of £20,000. 

The date when British Isas will become available has not yet been announced, however, with the government promising to consult on the details.

• Find out more: does it pay to be patriotic with your savings?

7. It's about futureproofing your savings

Putting money in an Isa isn’t just about saving tax today, it’s about sheltering your money from tax in the future, too.

It's especially important in today's climate, with a freeze on the basic and higher-rate tax thresholds pushing more people into higher tax brackets when their wages go up.

• Find out more: tax on savings interest and investment income