Financial journalist Martin Lewis has moved to clarify widespread confusion surrounding Individual Savings Accounts (ISAs), directly addressing persistent myths that could prevent savers from making the most of their tax-free allowances.
Permanently Tax-Free: The Core ISA Benefit
Lewis confirmed the fundamental principle that underpins all ISAs: all interest earned or investment gains within the account remain completely free from tax. Crucially, he emphasised that this tax-free status is permanent, or "in perpetuity," for as long as the money stays within the ISA wrapper.
A major point of confusion he tackled is the fear that building a large pot over many years could eventually lead to a tax bill. Lewis was unequivocal: savers can deposit up to the full £20,000 annual allowance every single year, and the entire accumulated sum, regardless of size, stays protected from tax.
Transfers and Allowances: What Counts as "New Money"?
Lewis also addressed a second common misunderstanding regarding moving money between accounts. He confirmed that transferring funds from one Cash ISA provider to another, or even switching to a Stocks and Shares ISA, does not use up any of your annual allowance.
The expert clarified that the £20,000 annual ISA allowance applies solely to "new money" – funds that a person is putting into an ISA for the first time and which haven't been saved in an ISA before. This is vital information for savers looking to shop around for better interest rates by moving existing pots without penalty.
Upcoming Rule Change for Savers Under 65
The article also served as a timely reminder of a significant change to ISA rules, originally announced in the Autumn Budget. From April 2027, while the overall annual ISA allowance will remain at £20,000, there will be a new limit on how much can be placed into a Cash ISA.
For savers under the age of 65, the maximum that can be invested in a Cash ISA will be capped at £12,000 per year. This change does not affect those aged 65 or over.
To maximise their allowance, savers will be able to allocate the remaining £8,000 to other ISA types, such as a Stocks and Shares ISA. Lewis's clarifications come as essential guidance for savers planning their long-term financial strategies ahead of this shift.
