With the end of the 2023/24 tax year just around the corner, now’s the time to get yourself into the ISA spirit. It can sometimes get a little bit confusing, so here’s your no-nonsense guide to everything you should know about ISA allowances.
1. How does the ISA annual allowance work?
Every tax year, savers are given an allowance for how much they can save each year into an ISA without having to pay any capital gains or income tax.
In the 2024/25 tax year, the annual allowance is £20,000. This hasn’t changed from the 2023/24 tax year, which ended on 5th April 2024.
Unlike some other tax allowances, if you don’t use your ISA annual allowance, you lose it. This means you can’t roll any of the allowance over into the next tax year.
From the 2024/25 tax year, the government have expanded the opportunities of opening more than one ISA per tax year. This means you could open two or more products of the same type (like two or more Stocks and Shares ISAs, or Cash ISAs), with different providers, within the same tax year. But you can’t open more than one Lifetime ISA (LISA) in one tax year.
Keep in mind, you can only save up to £4,000 per tax year into a LISA.
2. How much can I invest into an ISA?
The annual allowance is £20,000 across all ISAs, not per ISA account. That means if you have more than one ISA, (such as a Virgin Money ISA), or ISAs with other providers, your annual allowance will be split between them.
If you’ve saved up to £20,000 in one tax year, you can leave it in your ISA to continue growing - any interest or growth you make on this will not be subject to income or capital gains tax.
You can have amassed more than the annual allowance in your ISAs, as long as you don’t pay in more than the annual allowance in a single tax year.
The way you split your annual ISA allowance is entirely up to you. You can put it all into one ISA or mix it up and spread it out into multiple ISAs.
If you accidentally pay too much into your ISAs, and you’ve gone over the annual allowance, you can let HMRC know. Or, if you’re not aware you’ve overpaid, HMRC will get in touch with you and let you know how they’ll adjust for the overpayment.
3. Does transferring an ISA affect my allowance?
You can transfer an ISA to another provider without it affecting your allowance.
Say, for example, you have two Stocks and Shares ISAs, two Cash ISAs and one Lifetime ISA. You’ve saved £4,000 into each of them, they’re all with different providers and you want to renovate your home in the next few months.
You decide to transfer the £4,000 you have saved from each of your two Stocks and Shares ISA to a new Cash ISA with a better rate, allowing you to access the £8,000 when it’s needed.
But it’s not just home improvements that savers can benefit from when it comes to transferring their ISAs. Some savers will really appreciate being able to partially transfer, or fully transfer their ISAs, especially if they have them with different providers, in order to bring them all under one roof. Or, to find better rates.
4. Can I inherit ISA allowances?
You can inherit an allowance on top of your own if your spouse or civil partner dies. It’s called an Additional Permitted Subscription (APS) ISA allowance.
Your own ISA allowance isn’t affected, but you’ll also get an APS ISA allowance which is either the value of your spouse’s ISA when they died, or the value of the ISA when it is closed down.
For example, if your spouse or civil partner had £5,000 in their ISA when they died, you would have your £20,000 ISA allowance in the current tax year, plus their £5,000 as an inherited ISA allowance.
Depending on your ISA provider and your spouse’s ISA provider, there may be some fine print that you need to keep in mind before using any of your inherited allowance.
5. Things to think about when using your ISA allowance
- Remember that in the 2024/25 tax year, your ISA allowance will be £20,000 and if you don’t use it in this tax year, you won’t be able to roll any of it over into the next.
- You can have more than one ISA account in the 2024/25 tax year, but you can’t save more than £20,000 across all of them, so make sure you keep a check on how much you’re saving into your ISAs, especially if you have more than one.
- You can transfer some or all of your ISAs to different providers.
- Transferring your ISAs doesn’t affect your annual allowance. You can transfer your ISA to another provider without it affecting your £20,000 allowance.
- If your spouse or civil partner dies, you will be able to receive an Additional Permitted Subscription allowance, but different providers may have different requirements about how you use it, so it’s best to check with them what applies to you.
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We hope the information in this article is useful, but it isn't financial, personal or tax advice. If you want expert advice, you should speak to an Independent Financial Advisor. Remember, the value of investments can go up and down, so you may get back less money than you put in.
You should think of investing as a medium to long-term commitment – so be prepared to invest your money for at least five years. Tax depends on your individual circumstances and the regulations may change in the future.