The ISA allowance1 is the maximum amount of new money you can put into the range of tax-free savings and investment accounts that make up the ISA family.
The ISA allowance for the current tax year to 5 April is £20,000.
The tax year runs from 6 April to 5 April the following year.
ISAs are a brilliant vehicle for growing your wealth tax-free. But the rules are complicated, and seemingly made up by a bureaucrat with a grudge against humanity.
This article will help you make the most of your ISA allowance.
We’ll iron out the wrinkles leftover from the government’s ISA pages.
What is an ISA?
ISA stands for Individual Savings Account. It’s the UK’s most important tax-free account for savings and investments that you want to access before retirement age.
ISAs are called tax-free wrappers because they legally protect the assets inside the account from:
- Income tax on interest paid by cash, bonds and bond funds.
- Dividend income tax on dividends paid by shares and equity funds.
- Capital gains tax paid on the growth in value of assets such as shares, bonds, and funds.
You don’t even have to declare your ISA assets on your self assessment tax return. This can save you a bellyful of tax paperwork.
Your assets remain tax-free as long they’re held in an ISA account. And so long as you don’t have the cheek to die.
You don’t even lose out if you move abroad. (At least, not from the perspective of the UK government…)
Unlike a pension, your ISA funds are typically2 accessible at any time.
You’re also not charged income tax on withdrawals from an ISA – again unlike a pension. So there’s no danger of being pushed into a higher tax bracket by the wealth you accumulate in your ISA.
- Read up on ISAs Vs SIPPs to decide how to best allocate between them.
ISA accounts: what types are there?
|ISA type||Allowance3||Eligible investments||Notes|
|Stocks and shares ISA||£20,000||OEICs, Unit Trusts, Investment Trusts, ETFs, individual shares and bonds||Age 18+. Can be flexible, but only cash can be added and withdrawn|
|Cash ISA||£20,000||Savings in instant access, fixed rate, and regular varieties||16+. Can be flexible|
|Innovative Finance ISA (IFISA)||£20,000||Peer-to-peer loans (P2P), crowdfunding investments, property loans||Age 18+. Can be flexible. Not covered by FSCS compensation scheme|
|Lifetime ISA (LISA)||£4,000||As per cash ISA or stocks and shares ISA||Open account from age 18 until 40. Pay in until age 50. Only use for buying first home, or from age 60, otherwise penalty charge|
|Junior ISA (JISA)||£9,0004||As per cash ISA or stocks and shares ISA||Open until age 18. Child may withdraw funds from 18+|
New Help to Buy ISAs are no longer available. If you have one already you can continue to save into it until 30 November 2029.
What about the NISA? NISA stands for New Individual Savings Account. This term described the new-style ISAs brought in by rule changes in 2014. Today every ISA follows the NISA rules, so the jargon is obsolete.
How much can I put in an ISA in 2022 – 2023?
You can save up to £20,000 of new money into your ISAs during the tax year 6 April 2022 to 5 April 2023. That will also be the limit during the tax year 2023 – 2024.
You can put all £20,000 of your ISA allowance into one ISA5 or split it across any combination of the following ISA types:
- Cash ISA
- Stocks and shares ISA
- Lifetime ISA (£4,000 annual limit)
- Innovative Finance ISA
The rule is that you can only pay new money into one of each ISA type per tax year.
For example you could put £20,000 into a stocks and shares ISA and nothing into any other type.
Or you might split your £20,000 like this:
- Stocks and shares ISA = £14,000
- Lifetime ISA = £4,000
- Innovative Finance ISA = £1,000
- Cash ISA = £1,000
Or any other combination you like. Just so long as you don’t pay in more than £20,000 within the tax year, and you don’t put new money into more than one of each ISA type.
What about money in previous years’ ISAs? That money does not count towards your annual ISA allowance for the current tax year.
For clarity’s sake, we’ll refer to assets in your previous years’ ISAs as old money. Assets in the current tax year’s ISAs we’ll term new money.
Interest, dividends, and capital gains earned on assets already held within an ISA do not count towards your ISA allowance.
Your £20,000 ISA annual allowance is a ‘use it or lose it’ deal. You can’t rollover any of it into the following tax year.
The ISA deadline for using up your allowance this tax year is 5 April 2023.
More ISA wrinkles
- Each ISA can be held with the same or a different provider.
- Payment into a JISA uses up the child’s allowance, not yours.
- Some providers have all-in-one cash ISAs. With these you can split new money between instant access and fixed-rate options, within a single ISA wrapper. That means you only count as contributing to a single cash ISA.
- The Help to Buy ISA counts as a cash ISA. If you pay new money into your Help to Buy ISA then you can’t also pay new money into a Cash ISA. A few providers include their Help to Buy ISA within their all-in-one cash ISA.
- A workplace ISA counts as a stocks and shares ISA. If you’re one of the three Britons6 who has one, then you can’t pay new money into a standard stocks and shares ISA, too. See below for our cunning workaround.
- You can only claim the government bonus when buying your first home from a Help to Buy ISA or a Lifetime ISA. Not both.
Withdrawing from an ISA: the flexible option
If you withdraw money from your ISA, can you replace it and not reduce your ISA limit?
Yes, but only if your ISA is designated as ‘flexible’.
If your ISA is not flexible (ask your provider) then a withdrawal reduces your tax-free ISA savings as follows:
- You put £10,000 into your ISA. That reduces your ISA allowance to £10,000.
- Next you withdraw £5,000.
- You can only contribute another £10,000 into your ISAs this tax year.
- Do so, and you’ll have added £15,000 to your ISAs in total by the end of the tax year.
Obviously £15,000 is less than £20,000, and so you’ll not have maximised your annual allowance.
Flexible ISAs get around this problem. More on them below. Again, ask your provider if your ISA is flexible or check its key features documentation.
How many ISAs can I have?
You can have as many ISAs as you like. Or as many as providers are willing to open for you.
However you just can’t contribute new money to multiple ISAs of the same type in the same tax year.
That rule remains the same whether we’re talking about a freshly opened ISA or one that you hold from previous years.
You can put new money into a previous year’s ISA if your ISA provider allows.
If you put new money into a previous year’s ISA of one type then you can’t put new money into another ISA of the same type in the same tax year. You’d have to wait until the next tax year.
For instance, you put money into your existing shares ISA from earlier years. You cannot now put new money into a different shares ISA for the rest of this tax year.
The government calls this the one-type-of-ISA-a-tax-year rule. (Snappy!)
However you can open new ISA accounts by transferring old money into them from previous years’ ISAs.
You could open, say, ten stocks and shares ISAs with multiple providers by transferring old ISA money into them. Let sanity be your guide.
That leads to a workaround for moving new money into more than one ISA of the same type. More on this below.
An ISA transfer enables you to officially switch an ISA’s holdings to another provider. This way you avoid losing the tax exemption on your assets when moving them.
The transfer rules for any ISA opened in the current tax year are straightforward:
- You must transfer the whole balance of your ISA…
- …and you can transfer it at any time to another provider.
- You can also transfer it to any other type of ISA, or even the same type. (Let’s live a little!)
- If you transfer from one type of ISA to another, then you count as subscribing to the receiving ISA type. For example, you transfer from a cash ISA to a stocks and shares ISA. You can still open a new cash ISA without contravening the ‘one type of ISA per tax year’ rule.
- If you transfer from a Lifetime ISA to a different ISA type before age 60, you’ll have to pay a nasty penalty charge.
- Beware any transfer fees imposed by your current ISA provider.
- Transfers into a Lifetime ISA must not exceed the £4,000 current tax year limit.
The golden rule with any ISA move is always to transfer your money. Don’t just go “sod it!” and withdraw your cash in a flounce. If you transfer your ISA to another provider, your assets retain their tax-free status. If you just withdraw the money they don’t.
- Find out how to transfer a stocks and shares ISA.
ISA transfer rules for previous years’ ISAs
You have more options with ISAs opened in previous tax years. You can transfer any amount from any of your old ISAs to the same or any other type of ISA.
- Any number of your old ISAs can be consolidated into a new ISA of the same or different type.
- Any of your old ISAs can be split by transferring a portion of the balance into multiple ISAs of the same or different types.
- You can transfer to the same or different providers.
Transferring previous years’ ISAs leaves your current tax year’s allowance untouched.
For example, moving £40,000 from an old ISA into a new ISA still leaves you with a £20,000 ISA allowance for the current tax year.
You could transfer £4,000 into this year’s LISA from an old ISA (of any type), gain the government bonus, and leave your £20,000 allowance entirely intact.
This move maxes out your LISA allowance for the tax year. But you must not then exceed that £4,000 LISA limit by transferring more cash into the LISA during the current tax year.
As before, make sure you transfer an ISA. Employ the new provider’s ISA transfer process to maintain your ISA money’s tax-free status. Don’t withdraw cash or re-register assets using any other method.
As you can see, your old ISA optionality amounts to a near Bacchanalian free-for-all.
Which brings us to our heavily trailed workaround for the one-type-of-ISA-a-tax-year rule.
Hang on to your hats!
Getting around the one-type-of-ISA-a-tax-year rule
Let’s say you wanted to split £20,000 between two new stocks and shares ISAs.
You could do it like this:
- £10,000 into a new stock and shares ISA.
- Transfer £10,000 from previous years’ ISAs into another new stocks and shares ISA.
- Replace the transferred old ISA money by funding a new cash ISA with the remaining £10,000 of your current tax year ISA allowance.
Obviously this manoeuvre requires you having, say, an emergency fund of cash tucked away in your old ISAs. But that’s a good idea anyway.
If you don’t want to open a new cash ISA then you can choose any of the other types except a new stocks and shares ISA. (That’s because of the one-type-of-ISA-a-tax-year rule.)
Flexible ISAs let you withdraw cash and put it back in again later the same tax year. Their special sauce is they allow you to do this without grinding down your current tax year’s ISA allowance or reducing how much you’ve saved tax-free.
The following ISA types may be flexible:
- Stocks and shares ISA
- Cash ISA
- Innovative Finance ISA
Flexibility is not an inalienable right. The ISA provider has to decide to offer it and be prepared to deal with the administrative faff. Providers may offer flexible and inflexible versions of the same ISA type.
This example shows how the flexible ISA rules work:
- ISA allowance = £20,000
- Contributed so far = £10,000
- Remaining contribution = £10,000
- You choose to withdraw = £5,000
In this case can still pay £15,000 into your flexible ISA before the ISA deadline at the end of the tax year because:
Remaining ISA allowance = £15,000 (£10,000 remaining contribution + £5,000 replacement of the withdrawal.)
If your ISA was inflexible then your remaining ISA allowance would be just £10,000. In other words, you couldn’t replace the withdrawn amount. And it would have lost its tax-free status.
Flexible ISAs: contributing factors
Contributions made to an ISA in the same tax year as withdrawals work in this order:
- Replace the withdrawal.
- Reduce your remaining ISA annual allowance.
Withdrawals from an old flexible ISA can be replaced in the same tax year. This won’t reduce your current ISA allowance, provided the ISA is no longer active.7
Flexible ISAs containing assets from previous tax years and the current tax year work like this:
- From money contributed in the current tax year.
- From money contributed in previous tax years.
- Replace previous tax year’s withdrawals.
- Replace current tax year withdrawals.
- Reduce your remaining ISA annual allowance.
All replacement contributions must happen in the same tax year as the withdrawal.
Some providers say the withdrawal has to be replaced in the same ISA account you took it from.
More quirky than an octogenarian British actor
The ISA rules enable you to put your withdrawn money back into different ISA type(s) with the same provider, if they make that facility available.
Check your provider’s T&Cs. Or send them thousands of emails in BLOCK CAPITALS until they respond.
A flexible stocks and shares ISA allows you to replace the value of cash withdrawn. You can’t replace the value of shares, or other investment types that you moved out of the account, should they afterwards change.
You can sell down your assets, withdraw the cash, and then replace that cash later in the tax year, and buy more assets with it.
Dividend income should also be flexible in a flexible ISA scenario.
If you transfer your flexible ISA to another provider, then check its product is also flexible.
You may lose the ability to replace withdrawals if you don’t replace them before you transfer a flexible ISA. Again, this is determined by your provider’s T&Cs rather than the rules. (Subject them to a paid Twitter campaign to get an answer on this one.)
If your withdrawals result in your account being closed, your provider can allow you to reopen your flexible ISA in the same tax year and replace the money. That applies to old and new ISA accounts.
Again, check with your provider. (Via a billboard installed outside their office if need be.)
Flexible ISA hack to build your tax-free ISA allowance
- Open a flexible, easy access cash ISA that accepts ISA transfers.
- Transfer your non-flexible old ISAs into the flexible ISA.
- Your flexible ISA now accommodates the value of the old ISAs – say £40,000.
- If your flexible ISA doesn’t pay table-topping interest then withdraw your cash and spread it liberally among the humdinger savings accounts of your choice, or an offset mortgage.
- Move your cash back into the flexible ISA by 5 April of the current tax year. Fill as much of the current year’s ISA allowance as you can, too. For instance another £20,000.
- In our example, you now have £40,000 + £20,000 = £60,000 tax-free and flexible.
- From April 6 of the new tax year: withdraw your cash and liberally spread it.
- Repeat as required.
This method builds up a large and flexible tax-free shelter. One that could prove valuable later in life, when you have more money to tuck away.
For example, perhaps it could become a place to shelter and grow your 25% tax-free pension cash when you take it. This could be instantly transferred into a stocks and shares ISA, come the day.
Or maybe you’ll sell a business, or receive some other windfall.
Watch out for the £85,000 FSCS compensation limit (see below). Open a new flexible ISA with a different authorised firm before you go over that line.
What happens if you exceed the ISA allowance?
HMRC should get in touch if you exceed the ISA allowance. You may be let off for a first offence, but otherwise it will instruct your ISA provider on what action to take.
Action is likely to include your extraordinary rendition to an offshore black site where you will be forced to read HMRC compliance manuals for the rest of your life.
Alternatively, HMRC may require overpayments and excess income to be removed from your account. And also invite you to pay income tax and capital gains (potentially on all assets in the ISA) from the date of the invalid subscription until the problem is fixed.
Your ISA provider may also charge you a fee for the hassle.
You can similarly get into hot water for dropping new money into your ISA as a UK non-resident, or for breaching the one-type-of-ISA-a-tax-year rule, or for breaking the age restrictions.
You can call HMRC on 0300 200 3300 to discuss all this.
Just don’t expect them to admit to the Deep State stuff. Open your eyes sheeple! [Editor’s note: we’re joking.]
FSCS compensation scheme
What if your ISA provider goes bust and your money can’t be recovered? In that case the Financial Services Compensation Scheme (FSCS) waits in the wings.
- Cash – You can claim up to £85,000 compensation on cash held with each authorised firm.
- Stocks and shares – It’s more complicated, quelle surprise. But you can claim up to £85,000 compensation on investments held with each authorised firm.
- Innovative Finance – Not covered by the FSCS. You’re on your own.
Watch out for the definition of an ‘authorised firm’. Often multiple brand names sit under the same authorised firm umbrella.
For example, if you have cash at HSBC and First Direct then you’re only covered for £85,000 across both. They are one and the same authorised investment firm.
Investments parked at the same bank should be covered for another £85,000. That’s on top of your cash.
- The Bank of England provides a list of authorised firms and their ultimate parents. It appears to be updated every couple of years.
- Check the FCA’s Financial Services Register.
- Firms with matching FRN numbers (also known as registration numbers) are sister brands that only provide you with £85,000 of compensation cover between them.
Inheriting an ISA
The tax-free benefits of an ISA can be passed on to a surviving spouse or civil partner.
(We’ll refer to a ‘spouse’ in the rest of this section but the ISA inheritance rules apply equally to a civil partner. Unfortunately they do not apply to unmarried partners).
Upon death, all types of ISA (except a JISA) transform into a ‘continuing account of a deceased investor’.
This so-called ‘continuing ISA’ can then grow tax-free until the deceased’s affairs are settled.
The tax benefits of the deceased ISAs transfer to their spouse using an Additional Permitted Subscription (APS).
The APS is a one-time ISA allowance that enables the surviving spouse to expand their ISA holdings up to the value of the deceased’s ISA accounts.
By this mechanism, the tax-free status of the deceased’s ISAs are passed on to their spouse.
Unfortunately, the rules descend into a bureaucratic quagmire from here.
ISA inheritance rules for the Additional Permitted Subscription
A surviving spouse qualifies for the APS even if the ISAs are actually willed to someone else.
However, a spouse does not qualify if the couple are not living together at the time of death, or the marriage has broken down, they are legally separated, or in the process of being legally separated.
The value of the APS is the higher of:
- The ISA’s worth at the date of death
- Its value when the continuing ISA account is finally closed (assuming part of the APS hasn’t already been used)
The APS must be claimed separately from each of the deceased’s ISA providers.
You can choose which of the two valuation options above apply to each ISA provider. You don’t have to pick one option that applies across the board with every provider
The APS can be used from the date of death.
Although you’d normally expect an APS to be funded by the inherited ISA assets, this is not necessary. An APS can be fulfilled by any assets the spouse owns.
The APS must be used within:
- Three years from the date of death
- 180 days after the completion of the administration of the estate, if that’s later.
The APS does not interfere with the spouse’s own ISA allowance. They get that as normal.
APS subscriptions count as previous tax year subscriptions.
Therefore a spouse cannot break the one-type-of-ISA-a-tax-year rule when they use their APS. For example, by filling a new stocks and shares ISA after already opening one in the current tax year.
You should check the terms and conditions of all your ISAs to ensure they adhere to APS provisions. ISA providers aren’t automatically obliged to comply with the APS rules.
APS rules per ISA provider
One common restriction is that the spouse must use their APS with the same provider that runs the deceased’s ISA account. This leads to extra complications, as we’ll cover below.
As mentioned, the APS is divided into separate amounts that align to the value of the deceased’s continuing ISA accounts – as held with each of their providers.
- A continuing ISA worth £100,000 is held with provider A
- A continuing ISA worth £50,000 is held with provider B
The surviving spouse can now fund up to £100,000 of APS in ISAs with provider A, and up to £50,000 with provider B.
You can’t fill ISAs worth £75,000 with both providers. You can only ‘spend’ up to the limit of each APS per provider.
However, you can split each APS between any number and type of ISA per provider. (Although there are restrictions on the Lifetime ISA.)
You can fill both new and existing ISAs with each provider.
Transferring inherited ISA assets
In specie transfers from a continuing stocks and shares ISA must be made within 180 days of the assets passing into the beneficial ownership of the surviving spouse.
The in specie transfer can only be made to a stocks and shares ISA held by the spouse with the continuing ISA’s provider.
The assets must be the same as those held on the date of death.
Alternatively you can sell the investments for cash. The money can then be used to fund the APS with slightly fewer restrictions.
You can always transfer your ISAs to another provider as normal – after you’ve used your APS.
Lifetime ISA APS restrictions
You can’t open a new Lifetime ISA unless you’re aged between 18 to 40.
You can’t pay into an existing Lifetime ISA unless you’re under 50.
The APS does use up your £4,000 annual Lifetime ISA allowance.
You can’t pay APS into a Lifetime ISA if you’ve already paid into one in the current tax year.
A continuing ISA’s tax-free growth limits
Before the deceased assets are transferred via the mechanism we’ve just described, they grow tax-free in continuing ISAs until:
- Completion of the administration of the estate
- The accounts closure by the deceased’s executor
- Three years and one day after the date of death. Then the account can be closed by the ISA provider
The earliest of these dates applies.
The value of the deceased’s ISA holdings count towards their estate. The tax-free benefits are only passed to a surviving spouse.
Inheritance ISAs are a marketing label not an additional type of ISA. Every ISA can be inherited as described above. But please check your provider’s T&Cs for additional restrictions.
What happens to my ISA if I move abroad?
You can still put new money into your ISA for the remainder of the tax year when you stop being a UK resident. But you can’t contribute new money again until your residential status changes back.
Your ISA assets will continue to grow free of UK tax. But watch out! Your new country of residence may demand a slice.
- You should still be able to transfer ISAs without losing your tax exemption.
- Ditto for withdrawing money from a flexible ISA and replacing it.
- Ditto for inheriting an ISA.
Check with your provider before doing anything, just to be safe.
You should also tell your ISA provider when you’re no longer a UK resident. The UK means England, Wales, Scotland, and Northern Ireland. The Channel Islands and the Isle of Man are excluded.
If you split your time between the UK and other territories you can do a residency test. This will determine your status. Fun!
You don’t lose your ISA annual allowance if you’re a Crown employee serving overseas, or their spouse / civil partner.
Well, we’re sure this brief post has cleared everything up… But do let us know in the comments if we’ve missed a bit.
Take it steady,
Note: This article on the ISA allowance was updated in March 2023. Reader comments below may refer to an older version. Check the date to be sure.
- Also known to the government but to nobody else as the ‘subscription limit’. [↩]
- Exceptions: funds in a Junior ISA before the child reaches age 18, Lifetime ISA, Innovative Finance ISA loan lock-ins, and fixed-term/regular saver Cash ISAs where you’ll pay various penalties for early release. [↩]
- Max per year, per person. [↩]
- per child [↩]
- The max contribution into a LISA is £4,000 a year. [↩]
- Disclaimer: exaggeration for comic effect. [↩]
- That is to say you’re no longer filling it with new money. [↩]
There are two specific cases where shares *can* be moved into ISAs without a disposal, and this is for SAYE and SIP shares within 90 days of exercise.
SIP shares can also be moved directly into a SIPP (yes, I know!), which is very tax efficient.
> and SIP shares within 90 days of exercise
Damn, I didn’t know that. I knew you could shift SAYE but never realised it applied to shares incentive program shares too.
FWIW they still come out of your ISA allowance, valued at the time of transfer in the case of SAYE shares ISTR,
Yes, you can do SIP to ISA, but if you do SIP to SIPP then you get the tax relief all over again.
So, if you put £8k worth of SIP shares into a SIPP, HMRC will put another £2k into your SIPP, and a HR tax payer can then claim back another £2k.
My company doesn’t have a SIP yet and I wish they’d get a move on!
I am confused why transferring SIP shares into an ISA or SIPP is preferable to just selling them and transferring the cash (apart from saving on dealing fees). I have my first batch of SIP shares available next year, my current plan is to sell and put the proceeds into my SIPP.
@JJ It is primarily the saving on dealing fees, though a much greater advantage can be it also helps you with CGT if your profits are > 10k, which mine are so I wish I’d known that I could have booted my SIP shares into my ISA before I filled it up.
If you still work for the company then there are serious questions you need to ask yourself about whether you should hold SIP or SAYE shares after they become unembargoed/options exercised. This is because if the company becomes financially stressed both your income and your savings are at synchronised risk. If your capital gain is > 10k it definitely is worth transferring an ISA’s worth of shares into an ISA even if you are going to sell immediately afterwards and switch onto assets not related to the firm you work for. Or even if you draw it out and pay down the mortgage/throw a wild party. It is worth looking ahead to when your options mature, as if you have 5-year options purchased in the teeth of the credit crunch they may be coming out next year or the year after and you don’t want to have filled up your ISA beforehand if you want to use it to reduce or eliminate your CGT exposure. Some SAYE operators only seem prepared to shift the shares to their own ISA product, so you should research the possibilities available to you the year before, and no open an ISA if you have to open a company-specific ISA for your SAYE options as you can’t have two S&S ISAs in one tax year, or even close an existing one and open another.
In my case I don’t work for the company any more and it’s a decent divi payer so I now have a massive lump of SIP and SAYE shares outside my ISA, because I didn’t get this right at all.
The advantage of moving SAYE or SIP shares directly into tax sheltered accounts is that there is no disposal for Capital Gains Tax purposes as you do it. Every year, I use one ISA allowance for SAYE shares, and then both myself and wife use our CGT allowance.
Note that I haven’t yet done this with SIP shares but have with SAYE. I just get the certificate and send it off to HL along with instructions.
This share scheme specific stuff is simultaneously great input and well outside my circle of competence.
Thanks both for sharing. I hereby appoint you chaps (beg you to accept) the role of chief acronymed work share scheme experts for Monevator!
Coo, and we hadn’t even got on to EMIs, ESPs, LTIPs or CSOPs!
The annual allowance will present me with a few problems, but at least we’ve had some notice this time and can do some planning.
Time to brush up my Pension Input Period knowledge yet again!
On a brighter note, the 120% GAD being restored will help a lot.
Both the (N)ISA changes and the proposed pension changes in the budget are great new for those saving for retirement. Simpler, more flexible, and hopefully will give people confidence.
A good reminder of the ISA rules, I’m keen to ensure that I use my full NISA allowance this year, and use the pay myself first philosophy.
A question re tax obligations on funds held outside of ISA/SIPP wrappers, i have often read on Monevator and elsewhere that Bonds should be kept inside a tax wrapper if possible to minimise tax obligations. My question is this I am investing in the Vanguard LifeStrategy 60/40 fund, essentially a “balanced” passive fund of funds with 60% in Equities and 40% in Bonds and Gilt’s – How will HMRC view profits on this type of fund, would 40% of any gain have to be attributed to the bonds element and therfore need to be declared or treated differently vs the equities element ?
> essentially a “balanced” passive fund of funds with 60% in Equities and 40% in Bonds and Gilt’s – How will HMRC view profits on this type of fund…
The easiest way to check this is to look up the fund in Trustnet. Under the dividends tab it will say whether the dividend is classed as interest (eg LifeStrategy 20% equity) or dividend (LifeStrategy 40% equity and up).
As the VLS60 Fund is deemed to pay “dividends” and not “interest” and I remain a basic rate taxpayer, i think the tax treatment would be the same as for shares or any other equity only fund even when its held outside of NISA/SIPP Wrapper right ?
I also re read the reportable income post from earlier in the year http://monevator.com/excess-reportable-income/
and then checked where VLS60 is domiciled – happily its a GB ISIN so i seem to be off the hook for worrying about that little can of worms as well. !
Appreciate the tip on Trustnet thanks again
When I wrote message 9, the drawdown limit was at 100% of the GAD limit but they’d announced it going back to 120%. The new 150% is a stopgap prior to this limit being (hopefully) remove forever.
Hi Gary P, just be aware that it might be simpler to hold income units of a fund outside a tax wrapper, so that it is clear what dividend is received should you ever have to complete a self-assessment tax return.
I would be interested in the issue of inheritance of NISAs. I recall reading that the tax protection wrapper is lost on death, even when the investment is passed on to a spouse. Is this correct?
Nigel, yes. ISA will end on date of death.
See “What happens if I die” at
On the section “What happens to my ISA if I move abroad?” you should that the country you are moving to will most likely tax your ISA earnings
I always thought that Halifax and Lloyds had each £85,000.00 FSCS protection?
After Halifax Bank of Scotland (HBOS) got into trouble in autumn 2008, Lloyds TSB took it over, but remained as two separate institutions, so if you’ve savings in both, they’re covered up to £85,000 each.
Lloyds Bank, Lloyds Bank Private Banking is a group.
Bank of Scotland, Aviva, Halifax, Intelligent Finance, Birmingham Midshires (BM Savings), AA (for accounts opened before 2 September 2015), Saga, Capital Bank, St James’s Place Bank is another group.
Although I should note that the investments arms of Lloyds and Halifax are the same company (Halifax Share Dealing Limited, Bank of Scotland Share Dealing, IWeb Share Dealing, Lloyds Bank Direct Investments).
As my post above, my understanding is that this does not apply for the banking business though?
As an update I’ve asked about moving my sip and SAYE shares directly into my isa with Charles Stanley who unfortunately say they don’t accept overseas shares (it’s a US company) this may well be the straw that breaks the lazy camels back as I should really have moved to a fixed fee broker I believe (75k balance currently)
Still not much progress on LISA providers, is there…? The choice gets even more scanty if you’re trying to transfer an existing LISA over age 40. Providers such as AJ Bell don’t seem to think it’s worth adapting their websites to allow a transfer in…
One clarification to: “What happens to my ISA if I move abroad? Your ISA assets continue to grow tax-free…”
Free of UK taxes sure, but your new country of residence won’t recognise the ISA tax wrapper and will almost certainly want to tax you on the capital gains, dividends and interest from any investments held.
Wow, I just reread all the comments from 2014. A lot has happened since then, but we’re still using our ISA allowances every year and will be for the next 7+ years.
@fatbritabroad – I just assumed all ISA providers would let you hold US shares subject to a W8BEN. But an SAYE transfer directly to an ISA will be interesting as they’d need to recognise it as an SAYE, and there are rules such as “must be open to all employees” etc.
I find, SIPP as even more grudge against the humanity. Would greatly appreciate a detailed post on it.
@ Mike, AJP and Squirrel – thanks for highlighting those points. Have updated the post. Classic blunder with Lloyds and Halifax being one authorised firm for investments but two for cash.
@gadgetmind it’s more the extra admin they don’t appear to want to get involved in. Makes you wonder what exactly they’re charging their fees for….
Confused, anyone help?
I’ve got money in cash isa ?which has recently matured so I’ve opened a new cash isa with same bank and transferred my balance across. I’ve also paid this tax year new money into my stocks and shares isa 13k of my isa allowance. I now want to open a new cash isa with ns&I and put my remaining isa allowance (new money) of 7k in here. Can I do this?
@fatbritabroad Yes, they do try and do as little as possible. My father used the flexible ISA rules to free up some money to let them buy a new house even though their sale fell through. When he came up put the money back in, his provider told him that yes the rules allowed them to do it but they didn’t support it so sod off! He’s now mid 80s with an inconvenient unwrapped sum to keep track of. Nice.
hi- great article and also some great comments providing food for thought- id like some clarification on:
“You can transfer £4,000 into this year’s LISA from an old ISA (of any type), gain the government bonus, and leave your £20,000 allowance entirely intact.”
I have a 3 year old ISA in Vanguard. I put money in every year. I do not have a LISA.
Can I now open a new LISA and transfer £4k from my Vanguard ISA and then replenish my Vanguard ISA with a further £4k…or i have i misunderstood this.
@ Daisy – if your Vanguard ISA is flexible then you can replace the £4K, or you can put in £4K from this year’s new money if it’s not flexible and you haven’t opened another new stocks and share ISA in the meantime.
@ Dawn – So you funded a cash ISA with a transfer from an old ISA, now you want to put £7K from this year’s new money into a new cash ISA. You haven’t contravened the one-type-of-ISA-a-tax-year rule for new money or exceeded your £20K allowance so you should be fine. What’s causing you doubt?
Opening 2 cash is in one year is what’s bothering me.
I called the money advice service and they said no, I carnt open another cash isa. Even though one was a transfer of old money.
Really enjoyed the article, thank you. I’m struggling with how the Flexible ISA hack works though, just can’t get my head around it…if I was to move my pension money to a stocks and shares ISA, wouldn’t I be displacing the funds already accrued in there over the years, rendering them taxable anyway? I’m determined to understand this!
@ Dawn – I suspect you’re talking to someone who doesn’t understand it very well. They’re contradicting their own advice:
You can transfer your current Cash ISA, as well as your ISAs from previous years. Cash ISAs from previous tax years can be split – with some money going to one provider and the rest to others. However, the full amount you’ve contributed during the current tax year must be transferred to the new provider.
You can transfer your Individual Savings Account (ISA) from one provider to another at any time.
You can transfer your savings to a different type of ISA or to the same type of ISA.
If you want to transfer money you’ve invested in an ISA during the current 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.
To switch providers, contact the ISA provider you want to move to and fill out an ISA transfer form to move your account. If you withdraw the money without doing this, you will not be able to reinvest that part of your tax-free allowance again.
*Investments and/or cash transferred are not new subscriptions for the purposes of the overall subscription limit.*
[N.B. The above and below paragraph are not concurrent.]
This means that the investor is regarded as never having subscribed to the original ISA so, subject to the annual subscription limits the investor may subscribe to another ISA of the type that has been transferred later in the current year (with the same or a different manager) without breaching the one ISA of each type a tax year rule.
If you’re worried you’ve somehow triggered a loophole then transfer your existing ISA to NS&I.
Transferring an old ISA doesn’t stop you opening a new ISA of the same type though.
@ Carl – if you take out your 25% tax-free lump sum from your pension then you don’t pay income tax on that amount. Everything else you drawdown over your personal allowance is liable to income tax.
The next step is to shelter that 25% tax-free lump sum in your ISA. Now you can draw it down or allow it to grow free of income tax, dividend income tax and capital gains.
Some people may be able to claim a 25% tax-free lump sum well in excess of £20,000 – so building your flexible ISA amount could be useful if you’re already holding substantial cash sums.
Use the cash sums to build your flexible ISA protection (some Monevator readers park that cash in an offset mortgage account for most of the year), then when your 25% lump sum comes in you could choose to transfer some of it to stocks and shares ISAs, keep some in cash and so on.
Thanks for taking the time to explain it to me, much appreciated. As I understand it one could amass 100k of flexible ISA allowance, have 100k of a 25% tax-free pension amount, then withdraw 100k from their ISA’s and replace that with the 25% lump sum of 100k from the pension. Then put the cash originally withdrawn from the ISA into an offset mortgage account (or the like), until they have rebuilt the ISA allowance over the next 5 years?
I think I have that last bit wrong in some way…
On a slightly separate note I also found this post really helpful – https://monevator.com/how-pensions-will-help-you-reach-financial-independence-quicker-than-isas-alone/
@gadgetmind – possibly 8 years too late for a question about the SIP to SIPP transfer thing, but you never know. I don’t understand the CGT benefit of a direct transfer. If I simply take the shares out of the SIP when they become un-embargoed, there’s no CGT liability at that point AIUI, and any future CGT liability is based on the market value at that point. So if I sell the shares immediately, there’s no capital gain, and I can take the money and put it into a SIPP, taking the income tax benefit, and buy shares in my company (or anything else). And going forward, there’s no CGT liability while those shares are held in the SIPP. What am I missing here?
@ermine – you drew attention to the “concentration” risk of a SIP. That’s something I’ve been wrestling with recently. So far I’ve been maxing out my SIP contributions, and selling chunks every year or so as they become “available” (i.e. unembargoed) in order to diversify. The ups and downs of the share price average out over time. But I’m now in my last five years, and I can’t decide whether I should taper down my purchases or go full speed ahead until I retire. I figure that in the last five years a SIP is very much like a pension, in that you get the tax and NI benefits on the way in (I get Salary Sacrifice for my pension), and all that crystallises when you retire, because you can take the shares out of the SIF without penalty at that point. If I put the money into my pension instead I’d forego the employer’s matching shares (but we only get one for every three we buy) but I could diversify into bonds or even something vaguely cash-like.
@ Carl – that’s it. You wouldn’t need to rebuild your ISA allowance as such because you’d have £100K in there from your pension. Then you could transfer some or all of it to a stocks and shares ISA and draw it down at your sustainable withdrawal rate.
Given that flexible ISA interest rates are likely to be terrible – quite a lot of readers put the cash to better use in higher interest bank accounts or offset against the mortgage.
I always thought I’d probably time my lump sum so that the cash turned up in late March. I’d bung some in this year’s ISA, some in next year’s, and you can still hold a fair bit in a taxable account without going over your allowances. The flexible ISA trick gives you another tool in the box.
@David C – regards SIP to SIPP, I forget the details, but I think the simple answer is “you’re right”. The company I worked for only did one SIP, and it wasn’t a stunner, but water cooler chats as it reached maturity mostly concluded with “hmmm, no point then, really.”
I have a question about trading within an isa. If I have invested my yearly allowance within my stocks and shares isa can I sell shares within the isa and use the funds to buy more shares within the same isa in the same tax year?
@Helen — Yes, once the money is in the ISA you can buy and sell within the ISA to your heart’s content. (You should see my portfolio turnover…)
It’s money IN and OUT that matters from a regulatory / allowance perspective. 🙂
Money in an ISA is effectively invisible/ignored to HMRC also — so you don’t have to report trades or gains or anything else on your tax return, *as long as* the money does not leave your ISA account.
You don’t have to report it if/when you withdraw the money either. But once that money has left your ISA it’s ‘unsheltered’.
Most savers/investors in shares allow money to roll up in their ISAs for years/decades.
Basically ISAs are the bee’s knees.
Can subscribing to an ISA with one provider and keeping a pre existing one from previous years with another provider be used effectively to avoid the one-type-of-ISA-a-tax-year rule and have stock and shares with more than one provider? For the tax year 2020/2021 I currently have a Vanguard Stocks and Shares ISA containing funds set with with a lump sum and a direct debit plan for regular payments. I would like to gain greater exposure to other funds while retaining the tax wrappers of ISA’s so I intended to set up a new Stock and Shares ISA with Hagreaves Lansdowne for the tax year 2021/2021. In order to avoid subscribing to two providers in the next tax year, I will not make any further payments (lump sums/direct debit) as of 5th April into my Vanguard S&S account. I assumed that this would mean that I am no longer actively subscribing in the new tax year to Vanguard so that I can open up a Hargreaves Lansdowne S&S account and make payments into it. I would like to keep the money I hope accumulates over time in the Vanguard account and not make withdrawals or further payments into it. I will obviously keep ISA allowances in mind but I want to be able to go back to the Vanguard account in the tax year 2022/2023 and repeat the same process going back and forth over the years but ensuring that I am not actively subscribing to more than one provider each year while allowing the money in each one to grow during this time with a diversified portfolio made up of funds from two S&S ISA providers and who knows even more if this is something that can be achieved. Is this a way around the rule and is it realistic?
No matter how many times I read the one-type-of-ISA-a-tax-year workaround instructions above, I can’t make sense of them. I’m sure it just results in £10,000 of new money in a new S&S ISA plus £10,000 of new money in a cash ISA? Any chance of some embellishment?
Let’s say I have one fully-loaded £20,000 cash ISA with provider A from a previous year and I want to move the whole lot into a S&S ISA with provider B. Additionally I have £20,000 of new money I want to split 50:50 between S&S ISAs with providers B & C. What would be the steps for this?
@ MoneyMarc – so you want:
Provider B – £30K in a stocks and shares ISA.
Provider C – £10K in a stocks and shares ISA.
To do that:
Put £20K new money into provider B’s S&S ISA.
Move £10K old money from provider A to provider B’s S&S ISA.
Move £10K old money from provider A to provider C’s S&S ISA.
Ahhh, the penny drops. Many thanks.
Really commendable effort to explain it better than anyone else on the internet.
Can I ask about the interplay of in-year investment returns in a flexible ISA and withdrawals?
For example, if you have a flexible ISA with both current year subscriptions (say of £20k) and previous years (say £50k).. and assuming that the investment made through current year subscription has gone up by £5000 in the same tax year.. what would be the order of withdrawals if an amount of £35k is sought to be withdrawn.
Also, such a revelation to hear this.. when you think you knew it all. “You could transfer £4,000 into this year’s LISA from an old ISA (of any type), gain the government bonus, and leave your £20,000 allowance entirely intact.”
@ Amit – thank you! It’s very nice of you to say.
Re: £35K withdrawal. You take out £35K and you can put back £35K. I’m not sure if you’d now count your current year’s subscription as £25K. I suspect you would as otherwise a flexible stocks and shares ISA (without the complicating factor of previous year’s subs) wouldn’t be very flexible. HMRC provide extensive examples of odd scenarios in ISA manuals that they publish. That’s the place to dig for a definite answer.
I am curious to know why we have a restriction that we can only pay into 1 of each type of ISA in a year. Why can’t I have 2 stocks ISAs and use both in a year as long as I don’t exceed the £20K limit? I currently use the Vanguard platform for some index investing but also get the urge to do some individual stocks at times.
On moving abroad: while it’s true you can no longer contribute to your own ISA, contributions to a child’s junior ISA may be made, up to the full £9k allowance, by a non-resident parent or guardian.
Thanks for the article, lots of good points to revise in here.
Something that has been concerning me recently is compensation if the provider goes bust. To make sure I understand what you’ve written above: are you saying if my S&S ISA provider goes bust I’m only covered for up to £85,000 per fund provider. So £85,000 for vanguard funds and £85,000 for iShares etc? If so this will make managing 3rd party risk quite tricky once the FI pot grows to a decent size. I’d it the same deal for SIPPs?
If your S&S ISA provider goes bust you’re only covered for up to £85,000.
If the manager of one or more of your funds goes bust you’re only covered for up to £85,000 per manager.
However, unlike with banks, your assets should not be commingled with the manager’s assets, so your assets should still be there and you’ll get them back eventually, most likely when another manager buys the failed manager’s book.
Thanks for your reply. That is quite scary though, makes me only want to keep £85,000 per provider like I would a bank. As although I should get my funds back eventually if I’m living off them I’ll need them sooner rather than later.
@Calum This is part of the reason for keeping a large wodge of cash when you’re decumulating, another being to avoid selling low.
If you stick with large, well known providers they’ll be rescued/taken over before the FSCS guarantee is needed.
I’ll still be spreading my money over more than one provider though!