There may be a strict ISA allowance each year, but that doesn’t mean you’re limited to one account. We take a look at the various ways you can split your ISA allowance.
How many ISAs can I have?
How many ISAs can you open each year?
You may only be able to put a set amount into ISAs each financial year (£20,000 in 2018/19) but how you split this sum across the various types of ISA account available is up to you.
There are four types of ISA to choose from;
- Cash ISAs: Work like a regular savings account, but you don’t pay tax on any interest earned.
- Stocks and shares ISAs: Allow you to invest in a range of funds, bonds and individual company shares. Any gains are free from personal income and capital gains tax.
- Lifetime ISAs: Aimed at saving specifically for a home deposit or retirement. Deposits over a certain amount are boosted by a 25% bonus from the Government.
- Innovative Finance ISAs: Allow people to receive tax-free interest and capital gains on funds lent through peer-to-peer lending platforms.
You can pay into one of each type of ISA each year, whether that’s a newly-opened account or an existing account you’re topping up. You can divvy up your allowance in a way that makes the most sense for you and your finances, however restrictions apply to Lifetime ISAs and they are only available for individuals between the ages of 18 and 40.
The other type of ISA you may have heard of is the Help to Buy ISA. This is classed as a type of cash ISA so you can’t open a Help to Buy ISA with one provider and a cash ISA with another.
How to decide on the right ISA mix
So, with four types of ISA to choose from, how do you decide on the right mix for you?
Consider your attitude to risk, what timeframe you’d like to save or invest over and what your ultimate financial goals are.
You may wish to split your allowance 50/50 between cash and stocks and shares or put the full amount into one type of account. It’s completely up to you, as long as you don’t exceed the limit.
If you want to take advantage of the bonus offered by a Lifetime ISA, it’s worth remembering these accounts have an annual limit of £4,000 – leaving you with £16,000 to potentially save or invest elsewhere.
What happens to ISAs from previous years if you open a new account?
As well as opening one new account for each ISA type each year, you can also retain accounts you’ve opened previously, meaning you could build up quite a collection of ISAs. However, you can’t add to an account from a previous year if you’ve opened and are contributing to a new one of the same type.
Put simply, if you have a cash ISA with one provider which dates back to a previous financial year, you can open a new cash ISA and make contributions in the current year while your previous savings continue to earn interest. You can’t, however, make contributions to both ISAs.
You can also transfer all or part of previous years’ ISA savings into a new account, where you get a better rate of interest, as well as opening a new one for the current tax year. Again, you just can’t contribute to both accounts in the same year.
There are no limits to how many transfers you can make in a year, but don’t do it yourself. Get your new provider to move the money or you risk losing its tax-free status and having the transfer count as a new ISA contribution.
The exception for 16- and 17-year-olds…
While both adult and junior ISAs are subject to annual allowances, there is a loophole that means 16-and 17-year-olds can actually open both types of account in the same year, meaning they can benefit from a combined annual allowance of £24,260.