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The ISA allowance: how it works and how to use it

How much can you put in your ISA piggy bank this year?

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.

The purpose of this article is to help you make the most of your ISA allowance. We aim to iron out the many wrinkles within the system that aren’t readily apparent on the government’s ISA pages.

What is an ISA?

ISA stands for Individual Savings Account, and it’s the UK’s top tax-free account for savings and investments that you want to access before retirement age. ISAs are known as a tax-free wrapper because they legally protect the assets inside the account from these taxes:

  • 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 you don’t have the cheek to die. You don’t even lose out if you move abroad.

Unlike a pension, your ISA funds are typically accessible2 at any time.

You’re also not charged income tax on withdrawals from an ISA unlike a pension, so there’s no danger of being pushed into a higher tax bracket by the wealth you accumulate.

Read this article for more on ISAs Vs SIPPs.

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 the cash component
Cash ISA £20,000 Savings in instant access, fixed rate, and regular varieties Age 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 18-40. 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 is a NISA? NISA stands for New Individual Savings Account and was a term used to describe the new-style ISAs that were brought in by the Coalition Government of 2014. George Osborne’s NISA rules swept away the awkward restrictions of the past, and replaced them with a raft of new complications instead. Nowadays every ISA uses the NISA rules and so the NISA term has dropped out of use.

How much can I put in an ISA in 2020?

You can save up to £20,000 of new money into your ISAs during the tax year 6 April 2020 to 5 April 2021.

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

A diagram that shows how to split your ISA allowance between the 4 different ISA types.

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 could split your £20,000 something like this:

  • Stocks and shares ISA = £14,000
  • Lifetime ISA = £4,000
  • Innovative Finance ISA = £1,000
  • Cash ISA = £1,000

Or any combination you like, as long as you don’t pay in more than £20,000 within the tax year, and 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 and assets in the current tax year’s ISAs as new money.

Interest, dividends, and capital gains do not count towards your ISA allowance, either.

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 2021.

More 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 so 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 own 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

If you withdraw money from your ISA then can you replace it and not reduce your ISA limit?

Yes, but only if your ISA is flexible.

If your ISA is not flexible then a withdrawal reduces your tax-free ISA savings.

For example:

  • You put £10,000 into your ISA. That reduces your ISA allowance to £10,000.
  • You withdraw £5,000.
  • You can still only contribute another £10,000 into your ISAs this tax year.
  • The maximum you’ll have put into your ISAs this tax year is £15,000.

Flexible ISAs get around this problem – see below. Ask your provider if your ISA is flexible or check its key features.

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.

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 (for example a stocks and shares ISA) then you can’t put new money into another stocks and shares ISA.

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 ten stocks and shares ISAs with multiple providers by transferring old ISA money into them. Let sanity be your guide!

That leads to an obvious workaround for moving new money into more than one ISA of the same type. More on this below.

ISA transfers

An ISA transfer enables you to switch your ISA to another provider without losing the tax exemption on your assets.

The rules for any ISA opened in the current tax year are straightforward:

  • You must transfer the whole balance of your ISA.
  • You can transfer it any time to another provider.
  • You can 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, if you transfer from a cash ISA to a stocks and shares ISA, then can now open a new cash ISA without contravening the one-type-of-ISA-a-tax-year rule.
  • If you transfer from a Lifetime ISA to a different ISA type before age 60, then you’ll have to pay a nasty penalty charge.
  • Beware any transfer fees imposed by your current ISA provider like a grasping sports agent.
  • Transfers into a Lifetime ISA must not exceed the £4,000 current tax year limit.

The golden rule with any ISA move is to transfer your money and not just go “sod it!” and withdraw it in a flounce. If you transfer your ISA to another provider, your assets retain their tax-free status. If you withdraw the money then 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 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.

This move maxes out your LISA allowance for the tax year, and you must not exceed that £4,000 limit by transferring in extra cash into the LISA during the current tax year.

As before, make sure you transfer an ISA using the new provider’s ISA transfer process to maintain its 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 hat.

If you wanted to split £20,000 between two new stocks and shares ISAs then you could do it like this:

  • £10,000 into a new stock and shares ISA.
  • £10,000 into a new cash ISA.
  • Transfer £10,000 from previous years’ ISAs into a new stocks and shares ISA.
  • Repeat as necessary.

Money is fungible as they say.

Obviously this manoeuvre requires you having, say, an emergency fund of cash tucked away in your old ISAs, but that’s a very good idea anyway.

Flexible ISAs

Flexible ISAs let you withdraw cash and put it back again later in the same tax year 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 offer it and be prepared to deal with the administrative faff. Providers often offer flexible and inflexible versions of the same ISA type.

Here’s an example to show how the flexible ISA rules work:

  • ISA allowance = £20,000
  • Contributed so far = £10,000
  • Remaining contribution = £10,000
  • Withdraw = £5,000

You can still pay £15,000 into your flexible ISA before the ISA deadline at the end of the tax year.

Remaining ISA allowance = £15,000 (£10,000 remaining contribution + £5,000 replacement of the withdrawal.)

A formula for calculating the remaining ISA allowance when you withdraw from a flexible ISA

If your ISA was inflexible then your remaining ISA allowance would be just £10,000. In other words, you couldn’t replace the withdrawal amount, which loses its tax-free status.

Contributions made in the same tax year as withdrawals work in this order:

  1. Replace the withdrawal.
  2. Reduce your remaining ISA annual allowance.

Withdrawals from an old flexible ISA can be replaced in the same tax year and won’t reduce your current ISA allowance, if the ISA is no longer active.

Flexible ISAs with assets from previous tax years and the current tax year work like this:

Withdrawals

  1. From money contributed in the current tax year.
  2. From money contributed in previous tax years.

Replacement contributions

  1. Replace previous tax year’s withdrawals.
  2. Replace current tax year withdrawals.
  3. Reduce your remaining ISA annual allowance.

All replacement contributions must happen in the same tax year as the withdrawal.

Some providers say that the withdrawal has to be replaced in the same ISA account that you took it from.

The ISA rules allow 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 to make them 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.

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. Looney Tunes.

If you transfer your flexible ISA to another provider then check that their 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 account closure then 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 but check with your provider… (Via a billboard installed outside their window if necessary.)

Flexible ISA hack to build your tax-free ISA allowance

  1. Open a flexible, easy access ISA that accepts ISA transfers.
  2. Transfer your non-flexible old ISAs into the flexible ISA.
  3. Your flexible ISA now accommodates the value of the old ISAs – say £40,000.
  4. If your flexible ISA doesn’t pay table-topping interest then withdraw your cash and spread it liberally among the humdinger accounts of your choice, or into an offset mortgage account.
  5. Move your cash back into the flexible ISA by 5 April of the current tax year, and fill as much of the current year’s ISA allowance as you can, too. For instance another £20,000.
  6. In our example, you now have £40,000 + £20,000 = £60,000 tax-free and flexible.
  7. From April 6 of the new tax year: withdraw your cash and liberally spread it…
  8. Repeat as required.

It may look like a vain hope at the moment, but this method builds up a flexible tax-free position that could prove valuable later in life.

Perhaps it could be a place to shelter and grow your 25% tax-free pension cash, which could be instantly transferred into a stocks and shares ISA come the day. Or maybe you’ll sell a business one day, or receive some other windfall, or taxes could go up…

Watch out for the £85,000 FSCS compensation limit (see below) and 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 will be in touch if you exceed the ISA allowance. You may be let off for a first offence but otherwise they 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.

Sorry, I must stop reading conspiracy theories.

Or maybe HMRC will require overpayments and excess income to be removed from your account. And 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.

You can call HMRC on 0300 200 3300 to discuss. Just don’t expect them to admit the Deep State stuff. Open your eyes sheeple!

Your ISA provider may also charge you a fee for all 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.

FSCS compensation scheme

If your ISA provider goes bust and your money can’t be recovered, then 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 also claim up to £85,000 compensation on investments held with each authorised firm.
  • Innovative Finance – These products are not covered by the FSCS scheme. 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 because they are one and the same authorised investment firm.

Investments parked at the same bank should be covered for another £85,000 on top of your cash.

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. 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. Check with your provider first.
  • Ditto for withdrawing money from a flexible ISA and replacing it.
  • Ditto for inheriting an ISA.

You should tell your ISA provider when you are 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 then you can do a residency test to 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.

Any questions?

Well, I’m sure that snappy post has cleared everything up but let us know in the comments if there’s any other ISA related business you’d like us to cover.

Inheriting an ISA is a whole other post. But just in case you’re planning on inheriting one very soon, (Hark! Is that the sound of sawing through brake cables?) then check that link to stop you salivating in the meantime.

Take it steady,

The Accumulator

Note: This article about The ISA allowance was updated in 2020. This means reader comments below may refer to a previous version of the article and may reference details that are now out of date. Check the dates for when the new comments start if confused to ensure you are getting the latest feedback on how ISAs work.

  1. Also known to the government but to nobody else as the ‘subscription limit’. []
  2. 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. []
  3. Max per year. []
  4. per child []
  5. The max contribution into a LISA is £4,000 a year. []
  6. Disclaimer: exaggeration for comic effect. []

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{ 43 comments… add one }
  • 1 gadgetmind November 23, 2012, 4:37 pm

    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.

  • 2 ermine November 23, 2012, 4:45 pm

    > 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,

  • 3 gadgetmind November 23, 2012, 4:52 pm

    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!

  • 4 jimmy jones November 24, 2012, 12:52 am

    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.

  • 5 ermine November 24, 2012, 12:06 pm

    @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.

  • 6 gadgetmind November 24, 2012, 2:13 pm

    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.

  • 7 The Investor November 24, 2012, 5:32 pm

    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!

  • 8 gadgetmind November 24, 2012, 6:04 pm

    Coo, and we hadn’t even got on to EMIs, ESPs, LTIPs or CSOPs!

  • 9 gadgetmind December 5, 2012, 4:35 pm

    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.

  • 10 gadgetmind August 19, 2014, 10:27 am

    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.

  • 11 Louise @ Good Financial Choices August 19, 2014, 12:11 pm

    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.

  • 12 Gary P August 19, 2014, 1:19 pm

    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 ?

  • 13 dearieme August 19, 2014, 1:50 pm

    150% GAD!!!!!!

  • 14 Hamzah August 19, 2014, 3:34 pm

    > 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).

  • 15 Gary P August 19, 2014, 4:11 pm

    Thanks Hamzah

    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

  • 16 gadgetmind August 19, 2014, 4:26 pm

    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.

  • 17 Hamzah August 19, 2014, 5:46 pm

    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.

  • 18 Nigel T August 19, 2014, 8:10 pm

    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?

  • 19 Andy August 19, 2014, 10:07 pm

    Nigel, yes. ISA will end on date of death.

    See “What happens if I die” at

    http://www.hmrc.gov.uk/isa/faqs.htm

  • 20 AJP September 1, 2020, 2:22 pm

    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

  • 21 Squirrel September 1, 2020, 3:10 pm

    I always thought that Halifax and Lloyds had each £85,000.00 FSCS protection?

    From MSE:
    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.

    From money.co.uk:
    https://www.money.co.uk/guides/which-banks-count-as-one-under-the-financial-services-compensation-scheme-fscs.htm
    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.

  • 22 Squirrel September 1, 2020, 3:32 pm

    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?

  • 23 Fatbritabroad September 1, 2020, 7:17 pm

    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)

  • 24 Haphazard September 1, 2020, 9:59 pm

    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…

  • 25 Mike September 2, 2020, 8:37 am

    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.

  • 26 gadgetmind September 2, 2020, 11:09 am

    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.

  • 27 gadgetmind September 2, 2020, 11:11 am

    @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.

  • 28 Tykva September 2, 2020, 2:12 pm

    I find, SIPP as even more grudge against the humanity. Would greatly appreciate a detailed post on it.

  • 29 The Accumulator September 2, 2020, 6:59 pm

    @ 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.

  • 30 Fatbritabroad September 3, 2020, 7:06 am

    @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….

  • 31 Dawn September 4, 2020, 12:30 pm

    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?

  • 32 gadgetmind September 4, 2020, 2:21 pm

    @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.

  • 33 daisygal168 September 4, 2020, 2:34 pm

    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.
    many thanks

  • 34 The Accumulator September 5, 2020, 12:44 pm

    @ 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?

  • 35 Dawn September 5, 2020, 1:18 pm

    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.

  • 36 Carl September 5, 2020, 3:09 pm

    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!

  • 37 The Accumulator September 5, 2020, 6:14 pm

    @ Dawn – I suspect you’re talking to someone who doesn’t understand it very well. They’re contradicting their own advice:

    https://www.moneyadviceservice.org.uk/en/articles/cash-isas
    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.

    https://www.gov.uk/individual-savings-accounts/transferring-your-isa
    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.

    https://www.gov.uk/guidance/transfer-an-isa-if-youre-an-isa-manager#transferring-an-isa
    *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.

  • 38 The Accumulator September 5, 2020, 6:31 pm

    @ 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.

  • 39 Carl September 7, 2020, 11:14 am

    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/

  • 40 David C September 8, 2020, 6:21 pm

    @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?

  • 41 David C September 8, 2020, 6:39 pm

    @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.

  • 42 The Accumulator September 8, 2020, 7:09 pm

    @ 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.

  • 43 gadgetmind September 11, 2020, 6:09 pm

    @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.”

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