How Can I Divide My ISA Allowance?

POSTED ON Monday, 17 August, 2020

The government-mandated ISA allowance for 2020/2021 is a healthy £20,000. So how can a savvy saver divide this up amongst the different ISA accounts on offer? And what do you need to know to make the most of your allowance?

You’ve decided you’d like to make use of your yearly £20,000 allowance from the government and open some ISA accounts, to take advantage of the attractive tax-free benefits.

The answer to this is: it depends what you want your money to do, as well as what kind of ISAs you want to put your money into. 

What are the limits?

As previously stated, the overall ISA amount (as set by the Government) is £20,000 – is runs for the whole of the tax year, so you can take advantage of this from 6th April 2020 until 5th April 2021. 

Few people have the spare capital to squirrel away the whole £20,000 allowance into one account; but no matter how much money you have to put into an ISA, it’s helpful to know the limits of how much you can put into each ISA type. 

Along with the overall ISA allowance, the government also imposes some limits on certain kinds of ISA accounts. 

For the tax year 2020/2021, these include:

  1. Lifetime ISA accounts: £4000 per year
  2. Junior ISA accounts: £9000 per year 

Although it is important to remember that the Junior ISA allowance is additional to the existing £20,000 ISA individual allowance, as this is an ISA intended for your child or a child you are a guardian of. 

How Many ISAs Can I Open?

You are able to open one ISA of each type per person per tax year. 

That means that you could open one Investment ISA and put in the whole £20,000 allowance. 

Or you could split that allowance between a LISA, an Investment ISA and a Cash ISA – but you could not split it between two new Investment ISAs. 

Theoretically, you could choose to open one new ISA each year. So, for example, if you had the whole £20,000 to spare, you could spread it as follows: 

  1. £4000 into a Lifetime ISA 
  2. £5000 into an Instant Access Cash ISA 
  3. £5000 into an Investment ISA 
  4. £6000 into an Innovative ISA (also known as a Peer-to-Peer ISA)

Which ISAs are right for me? 

We have lots of blogs that address this very question; it’s important to do your reading, so have a look both at our wealth of blog content but also on our pages for each type of ISA account, as these will give you more background information into how each of these ISA types work, and what the current deals are. 

You can find these pages here:

  1. Cash ISAs
  2. Investment ISAs
  3. Peer to Peer ISAs
  4. Lifetime ISAs

There are different types of the different forms of ISAs which suit different needs. 

For example, if you think you might need access to your money sooner rather than later, you might want to think about opening an Instant Access Cash ISA. But, if you know you are saving with a very long-term view then a Lifetime ISA might be for you. 

If you have a very low risk tolerance and you’re new to ISAs, then a Cash ISA might be right for you. 

But if you’re a seasoned investor, already with a profile of existing investment ISAs then you might want to look at diversifying your portfolio with a Peer to Peer ISA.

If you are a parent looking to invest in your child’s financial future, then opening a Junior ISA should be your first port of call.