February 26, 2024
Don’t forget to use your ISA allowance for 2023/24 before it disappears on 5th April. If you’re not sure about ISAs and what to do with them, here’s our round-up of the questions we’re most commonly asked.
What is an ISA?
ISAs (individual savings accounts) are a particularly tax-efficient way of saving for the future – and they can be extremely simple.
Cash ISAs operate like a normal deposit account but you pay no tax on the interest that you earn.
Stocks & Shares ISAs allow you to invest in equities, bonds and other similar assets, without paying tax on income or gains.
Why is it important to understand the annual ISA allowance?
There’s an annual allowance for putting money into an ISA which remains at £20,000 for the 2023/24 tax year. Any unused ISA allowance cannot be rolled over into the next tax year. When the new tax year begins, on 6th April, if you haven’t used all of your allowance from the previous tax year, they will be lost forever.
Can I have more than one ISA?
Yes, but your allowance is still £20,000 for the tax year 2023/24. This means that the sum of money you pay into different types of ISAs cannot exceed £20,000 in total.
You can only pay into one of each type in each year, so you can’t open multiple Cash ISAs, for example, but you can pay into a Cash ISA and a Stocks & Shares ISA.
How many different types are there?
Answers vary (!) but the government recognises four main types; Cash, Stocks & Shares, Innovative Finance and Lifetime ISAs commonly known as LISAs. The use of LISA is quite restrictive but if you meet the criteria they can be useful. There are also ‘Junior ISAs’ for children but they will in fact be a Cash ISA or a Stocks & Shares ISA depending on what the parent or guardian selects.
How long before I can access the money I save into ISA?
It depends. Most ISAs allow you to take money out whenever you like but make sure you understand any restrictions that may exist. A fixed-rate Cash ISA will typically require you to tie your money up for a set amount of time. If it does allow early withdrawals there is likely to be some sort of penalty.
Ordinarily you wouldn’t expect any sort of exit penalty with a Stocks & Shares ISA but remember that investments of that nature should be for the long-term. There is more information about LISAs and Junior ISAs below.
You should also understand if your ISA is a ‘flexible’ one, meaning that any money you take out can be replaced within the same tax year.
What is a Lifetime ISA, and can I get one?
If you’re aged between 18 and 39 you could open a Lifetime ISA. You’re allowed to put in up to £4,000 each year until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
Can I invest in an ISA for my child or children?
Yes. A Junior ISA can be opened by a parent or guardian for under 18s. Upon reaching the age of 18 the money belongs to the child who can use it however they wish. The Junior ISA allowance is £9,000 for the tax year 2023/24. This is a popular way to build up tax-efficient savings for university, a first home, etc. but proceed with caution and think about what you would say to your 18 year old self.
Can I transfer my existing ISA to a different provider?
Yes you can, and you won’t lose the tax-efficient status. Many previously attractive savings accounts have ceased to pay a good rate of interest, and naturally some Stocks & Shares ISAs offer poor value compared to others.
You should be able to transfer an existing ISA from one provider to another at any time as long as the provider’s terms and conditions allow it. If you want to transfer money you’ve paid in during the current tax year, you must transfer all of it. For money you invested in previous years, you can choose to transfer all or part of your savings.
Consolidating your ISAs makes it easier to keep track of your finances which is rarely a bad thing and we would be pleased to advise you on this subject further.
HAVE YOU USED ALL OF YOUR ISA ALLOWANCES FOR 2023/24?
ISAs are one of the most straightforward ways to achieve tax-efficient returns. There’s still time to use your allowances for the 2023/24 tax year but don’t leave it until the start of April. It’s only a 4-day week because of Easter and you might find that moving your money isn’t as simple as you might hope.
If you’d like to find out more, or talk about consolidating existing ISAs, please contact us.
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