How much can I pay into an ISA?
Each tax year, there's a limit set by the government to the amount you can save and invest in ISAs: your “annual ISA allowance”. The allowances are intended to reward savers and encourage us to invest more to support our future retirements, without creating a tax haven that can be taken advantage of by very wealthy individuals who just want to avoid paying tax.
The allowance for the current tax year is £20,000, which you can invest in any combination of permitted ISAs up to midnight on Friday 5 April 2021.
How much can I put into in which ISAs?
Up to 2014 there were restrictions on how much you could put into a cash ISA (less than half your annual allowance).
But the current government is very pro-ISA, so there are many more products and much more flexibility now.
There’s no longer a restriction on the amount you can put into a cash ISA.
You can spread your annual allowance across multiple products: a cash ISA, stocks and shares ISA, and an innovative finance ISA. But you can only open one of each type, each year. (See below for which category the different types of ISAs fall into, and any limits on how much you can pay in.)
Existing ISAs that you opened in previous years remain invested and can continue to grow. But compare the rates on them with newer products, and if necessary transfer poorly-performing savings and investments into new ISAs that offer better interest rates.
Transfers in from previous years’ ISAs don’t count as part of your ISA allowance for this year.
You can transfer your investment from a previous ISA into any kind of ISA – it doesn’t need to be the same type of ISA.
If you opened a previous investment ISA that you’re paying (say) £50 into each month, you can continue to do that, and your contributions will be subtracted from your current annual allowance. But you can’t pay into both a previous investment ISA and a current one.
A Cash ISA is simply a savings account you never pay tax on. You can open a new cash ISA each year, if you want. Useful for an amount of money you want to be secure while it’s earning a bit of money, and have easy access to, but if you don’t want it tied up for too long.
You may also want to consider structured deposit plans, which are a type of Cash ISA for lump-sum savings, which offer attractive returns linked to FTSE100 performance, with your capital guaranteed.
Cash ISA restrictions:
- If you already have a cash ISA you opened a previous year you can open a new one this year, but only ONE cash ISA a year.
- UNLESS the second (or third) cash ISA account you want to open in the same year is with the same provider
- Or if a new provider comes into the market offering more favourable terms, you can transfer over the cash you’ve already paid into another cash ISA, and close the previous account.
- Be careful to transfer ISA holdings – don’t just withdraw everything from the account and then close it: taking it out of the “ISA wrapper” means you lose the tax benefits.
Q: If I don’t use my whole allowance this year, can I add it onto next year’s allowance?
No. This is a use-it-or-lose-it allowance each year.
Stocks and Shares ISAs / Investment ISAs
These are two names for the same type of ISA. They’re not always invested in stocks and shares – your money could be invested in funds (which you by “units” of) or shares, or corporate and government bonds.
They are investments (not savings, like Cash ISAs). Your capital is at risk, and some of them are not covered under the Financial Services Compensation Scheme (FSCS), but the potential returns are much higher, which is why many people like to have a mix of low and higher-risks ISAs.
Peer to Peer / Innovative Finance ISAs (IFISAs)
These were introduced by the government in 2016 to allow people to invest in the growing “peer-to-peer” lending market, cutting out intermediaries and offer much higher rates of return, but at higher risk.
This is an investment ISA. So you can’t open one of these as well as an Investment ISA, (or “Stocks and Shares” ISA).
Q: What is the ISA allowance for next year?
The individual ISA allowance for 2021-2022 stays the same as this year, at £20,000.
The allowance for Junior ISAs is £9,000 for 2021-22 the same as this year
These were introduced in April 2017 and have largely replaced Help to Buy ISAs – people aged 18-40 can use them to save for their first home, or for retirement.
- The government will give you a bonus of 25% of what you pay in, up to a maximum of £4,000 a year
- There is one of these ISAs available which is a type of cash ISA (“cash LISA”), and the rest are investment LISA’s.
- So, again, you can only open one of each type a year.