The new tax year begins today, 6th April 2020, which also marks the day your personal Individual Saving Account (ISA) allowance resets.
We know that the investment world can be a confusing place for potential investors, particularly with the current turbulence in the markets, so we’re answering the most common questions about ISAs for those people who are looking to begin or continue investing to achieve their medium to long-term financial goals,
If you want to learn more about how the recent market changes could impact decisions around investing, head to our Q&A blog here
What is my 2020/21 ISA allowance?
Your personal ISA allowance for 2020/21 is £20,000, which has remained unchanged from the previous year.
What types of ISA are available to me?
There are several types of ISAs available to adults. However, the four most common types of ISAs are;
- Cash ISA,
- Stocks & Shares ISA
- Innovative Finance ISA
- Lifetime ISA (LISA)
All these ISAs will count towards your yearly personal allowance, so it’s important to know how allowances work.
Parents can also contribute to a Junior ISA (JISA) for their children, but this doesn’t affect their own personal ISA allowance.
Is my ISA allowance split across all types of ISAs? Or is it £20,000 per ISA?
Your ISA allowance can be split across the other different types of ISAs and the total amount that you can contribute into your ISAs collectively is £20,000.
To explain this a little better, read our examples below.
Method 1 – Go all in
Use up to the full £20,000 ISA allowance in one type of ISA - This can be within a Cash ISA, Stocks & Shares ISA or an Innovative Finance ISA. You cannot invest your full allowance towards a LISA as they have a maximum allowance of £4,000 per tax year due to the 25% government bonus you receive on contributions.
Method 2 - Mix and match your ISAs
Split your allowance between different types of ISAs. You can invest a maximum of £4,000 towards a LISA and the remaining £16,000 can be split between the other types of ISAs. For example, that could look like - £10,000 in a Stock & Shares ISA, £6,000 in a Cash ISA and £4,000 in a LISA.
Here at OpenMoney, we know that the majority of people don’t have £20,000 to invest each year! So, you can invest in a Stocks & Shares ISA with us from as little as £1! You can find out more about our investments here.
Can I contribute more than one ISA of the same type within the same tax year?
Unfortunately, you can’t. If you invest in a cash ISA in the 2020/2021 tax year, you will then not be able to contribute into another cash ISA in the same tax year. The same rule applies for other types of ISAs also.
You can contribute to several different types of ISAs in the same year.
What are the tax benefits of a Stocks & Shares ISA?
When investing into a Stocks & Shares ISA there are several tax benefits that come with it:
- Any interest or returns (sometimes referred to as ‘capital gains’) you make on an ISA are always tax free
- The money in your ISA won’t be subject to any tax when it’s withdrawn
Can I transfer my ISA to another provider?
Yes, although there are some restrictions when it comes to transferring ISAs. If you’ve already contributed towards an ISA during the current tax year and you wanted to transfer to a different provider, you must transfer all the contributions made in that current tax year.
For the money you invested in previous tax years, you can make a choice on whether you wish to transfer all or part of these savings.
To switch your providers, contact the ISA provider you want to move to and fill out an ISA transfer form.
Remember, some providers may charge you a fee when transferring.
Here at OpenMoney we offer a free transfer review and we will only tell you to transfer to us if it’s in your best interests - then we’ll manage the whole process for you.
When does your allowance restart?
An ISA allowance resets on a yearly basis at the start of a new tax year, which is always the 6th April. For the 2021/22 tax year the maximum ISA allowance will remain at £20,000.
If I don’t use my allowance, can I carry it forward to next year?
When your ISA allowance resets on the 6th April, you can’t carry over any unused allowance from the previous tax year, so it’s important to make the most out of your annual allowance before the deadline.
That’s our round-up of the most asked ISA questions for the 2020/21 tax year. If you want to read more about ISAs, you can check out our ISAs explained blog series!