What is an Individual Savings Account (ISA) - and... why SHOULD you have one.

What’s the Deal with ISAs? Why You (Yes, You) Should Be Using Them

Let’s be honest — the UK tax system isn’t exactly a walk in the park. But when it comes to keeping more of your hard-earned money, one of the biggest no-brainer tools out there is the humble ISA.

You might have heard of them before — maybe your bank mentioned it, or a mate said they’ve “got their cash in a Stocks & Shares ISA.” But what actually is an ISA? And why should you care?

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First Things First: What’s an ISA?

ISA stands for Individual Savings Account. It’s a tax wrapper — basically a legal way of keeping your savings or investments out of the taxman’s reach.

There are different types of ISAs, but they all have one magic rule in common:

Any money you earn inside an ISA — whether it’s interest, dividends or investment growth — is completely tax-free.

Yep, tax-free. No income tax, no capital gains tax. Nada.

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So What’s the Allowance?

Every tax year (6 April to 5 April), you get a new ISA allowance. For the 2024/25 tax year, the limit is:

• £20,000 per adult

You can spread this across different ISAs, or chuck it all into one — your choice. Just don’t go over that £20k mark.

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The 4 Main Types of ISA (and Why They Matter)

1. Cash ISA
   Basically a regular savings account, just tax-free. Decent for rainy day savings or if you’re risk-averse.
2. Stocks & Shares ISA
   For investing in funds, shares, ETFs etc. Ideal if you're playing the long game and want your money to work for you.
3. Lifetime ISA (LISA)
   For first-time buyers or retirement savers. Put in up to £4,000 a year and the government gives you a 25% bonus. That’s £1,000 free money a year. What’s not to love?
4. Innovative Finance ISA
   For peer-to-peer lending. Bit niche, more risk — probably not your starter ISA.

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Why Should You Care — Whether Employed or Self-Employed?

You might think “ISAs are for people with loads of spare cash.” Wrong.

Whether you’re a full-time employee or running your own gig, ISAs are one of the simplest, most effective ways to build wealth without giving a chunk away in tax.

Here’s why you should be using your ISA:

• Your savings grow faster, tax-free
• Investing becomes way more attractive
• You protect your future self (especially with a LISA)
• If you're self-employed, this is your DIY pension/retirement fund backup

And remember, that £20,000 allowance? It doesn’t roll over. If you don’t use it this tax year — you lose it.

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What Happens If You Don’t Bother?

You’re basically paying more tax than you need to.

Imagine your investments grow by 8% in a year, and you didn’t use an ISA. That growth could get taxed. Use an ISA? You keep 100% of it. Same goes for savings interest. And for self-employed peeps, every pound you can keep for yourself matters.

It’s like walking past a free coffee every day and buying your own instead. Why?

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Final Thought: Get In the Habit Now

You don’t need £20,000 sitting around to make the most of an ISA. Start small. Even £50 a month into a Cash or Stocks & Shares ISA is a win.

At ClariFi, we’re not here to confuse you — we’re here to help you actually understand where your money can work harder. ISAs are an easy win.

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