An ISA, or Individual Savings Account, is a tax-free wrapper for your money. You don’t pay tax on the savings interest or investment income you earn in an ISA, which can help your money to grow more quickly.
But there’s a catch. You have an annual ISA limit that you must stick to across all of your accounts, otherwise known as your ISA allowance.
In the current tax year, adults can put up to £20,000 in an ISA. However there are a number of further ISA allowance rules to know about, including different limits for different types of ISA.
How much can you put in an ISA each year?
Your annual ISA allowance lets you put up to £20,000 in an Individual Savings Account each tax year, which runs from 6 April to 5 April. The Lifetime ISA is an exception to this rule, because it lets you save a smaller amount of up to £4,000 each year, which the government tops up by 25%. But your contributions to a Lifetime ISA still count towards your overall £20,000 ISA limit.
You can split your £20,000 allowance across different types of ISA, including cash ISAs and stocks and shares ISAs.
If you don’t use your allowance it disappears, because you can’t carry it over into the new tax year. This is why it makes sense to maximise your ISA allowance as much as possible each tax year.
» MORE: Should I save using an ISA or a savings account?
🤓 Nerdy Tip
Some providers offer flexible ISAs, which allow you to withdraw money and put it back later without it affecting your ISA allowance for that year, as long as you replace the funds within the same tax year. This can help you get the most from your ISA allowance, so look out for this feature when comparing ISA providers.
How many ISAs are you allowed?
A rule introduced in April 2024 allows you to open and pay into multiple ISAs of the same type every year.
While it was possible to hold several ISAs before April 2024. you could only pay into one of each type every tax year. This change gives you the opportunity to split your annual allowance across a number of accounts, but you should be careful not to go over your £20,000 limit.
If you’re looking to pay into multiple ISAs of the same type with the same provider, not all providers actually offer this ability yet, so check with yours before going ahead. You might find it easier to open multiple ISAs of the same type by spreading them across a few providers.
The April 2024 rule change doesn’t apply to the Lifetime ISA – while you can hold multiple Lifetime ISAs, you can still only pay into one each tax year.
What is the Junior ISA allowance?
Parents and guardians with parental responsibility for a child can open a Junior ISA (JISA) for them. Children have a JISA allowance of £9,000 in the current tax year, separate from an adult’s £20,000.
There are both cash JISAs and stocks and shares JISAs available and you can split the £9,000 allowance across both. Your child can have just one of each type of account. It’s not possible to open multiple cash JISAs, for example.
When does your ISA allowance reset?
As with other allowances such as the personal savings allowance, your ISA allowance resets at the start of the new tax year on 6 April.
This means that you have until midnight on 5 April to maximise your ISA allowance, but it’s best not to leave any contributions until the last minute.
While opening an ISA can be quick, if you open one close to 5 April with the intention of boosting your savings, you won’t be leaving yourself much time to deal with any snags. For example, the provider may ask to see documents if they can’t easily confirm your identity.
You’ll also want to leave enough time for any last-minute ISA top ups to process. If the transaction doesn’t go through before midnight on 5 April, it will count towards the next year’s ISA allowance.
Do ISA transfers count towards the allowance?
ISA transfers don’t count towards your ISA allowance, as long as you follow the correct process when transferring your ISA.
Withdrawing the money from one ISA account and putting it into another manually means that you’ll use up your allowance. Instead, you need to request an ISA transfer.
The process can be different depending on the type of ISA you’re transferring to and from. It’s best to speak to your new provider if you’re not sure.
You should also find out whether there are any exit fees for transferring out of an ISA.
Does ISA interest count towards the allowance?
Your ISA allowance only applies to funds that you pay in, rather than anything you earn on your savings within the account.
This means that interest earned in a cash ISA doesn’t count towards your allowance, and neither does any returns on your investments held in a stocks and shares ISA.
What happens if you go over your ISA allowance?
HMRC will get in touch with you if you go over your ISA allowance. You don’t need to do anything.
Anything you save above £20,000 will be outside of a tax-free wrapper and your earnings could then be liable for tax. But after realising your mistake, you shouldn’t attempt to correct it yourself by withdrawing money from your account.
After the end of the tax year, HMRC will contact you to let you know whether you owe any tax. They should take your personal savings allowance into account.
You can also speak to your ISA provider, who should be able to give you information about what to do next.
WARNING: We can’t tell you if any form of investing is right for you. Depending on your choice of investment, your capital could be at risk and you may get back less than you paid in.
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