Cash ISAs and connected accounts for ISA managers
Find out what investments qualify for a cash ISA, and the rules on connected accounts.
Qualifying investments for cash ISAs
Qualifying investments for the cash ISA are:
- cash deposited in one of the following that is designated as an ISA account:
- a deposit account or share account with a building society
- a deposit account with a credit union
- a deposit account with a bank other than of a type at section 991(a), (d) or (e) of the Income Tax Act 2007 (including for this purpose a credit union)
- a deposit account specified as a stakeholder product by regulation 4 FSMA 2000 (Stakeholder Product) Regulations 2004 (SI 2004/2738).
- securities, other than National Savings certificates, premium savings bonds, National Savings stamps and National gift tokens, issued under the National Loans Act 1968 or the National Savings Bank Act 1971, on terms that provide for them to be held in the cash component of an ISA
- money market funds as defined in the Money Market Funds 2024 regulations
- units in a collective investment scheme specified as a stakeholder product
- shares in a company
- qualifying investments in policies of life insurance made after 5 April 2004 that would otherwise have been eligible for the stocks and shares ISA but failed the 5% test that applied before that date
In practice, managers can operate a single account — which may also hold other savings products, such as stocks and shares ISA, feeder fund, and current account balances — provided both of the following apply:
- the account is designated as an ISA account
- the monies relating to each investor’s ISA are recorded and can be accounted for separately
A ‘Credit Union’ is a society registered as a credit union under the Industrial and Provident Societies Act 1965 or the Credit Unions (Northern Ireland) Order 1985.
A Credit Union regulated by the Financial Conduct Authority (FCA) and subject to the Financial Services Compensation Scheme can provide ISA cash component products.
An ‘alternative finance arrangement’ is an arrangement falling within S47 and 49 of Finance Act 2005 (savings products providing similar types of return to a deposit savings account). It covers products such as Sharia accounts that do not pay interest.
Connected accounts
Where at any time, a cash ISA is connected with another savings account that is not an ISA, a Junior ISA or a Child Trust Fund, it will cease to be a qualifying investment.
A cash ISA is connected with another account if either was opened with reference to the other, or with a view to either:
- enable the other to be opened on particular terms
- facilitate the opening of the other on particular terms and the terms on which the cash ISA was opened would have been significantly less favourable to the investor if the other had not been opened
HMRC will accept that an account is not a connected account if it is a “feeder” account opened to enable investors to fund future deposits into an ISA, provided that the interest on the feeder account is in line with the interest paid on the ISA manager’s other savings accounts. Such feeder accounts should not be included on ISA managers’ returns of information.
HMRC will not use the ‘connected accounts’ rule in cases where the terms of the connected accounts are the same.
Last updated 6 April 2024 + show all updates
-
Outdated information has been removed and references have been corrected.
-
First published.