CAN I PUT £20,000 IN AN ISA EVERY YEAR?
The main limit you need to keep in mind when planning your Isa contributions is £20,000. This is the maximum total amount you can pay into your own Isas each tax year across all of your accounts.
You can split this up however you like, and between any Isas – for example, you could pay £10,000 into a cash Isa, £6,000 into a stocks and shares Isa and £4,000 into a lifetime Isa.
You could also deposit the full £20,000 into one account – but not all Isa types will allow this. Here, Telegraph Money explains what you need to know.
Rules for contributing £20,000 annually in an Isa
The £20,000 Isa limit refers to the maximum amount you can save across all of your Isas in any single tax year, which is between April 6 and April 5. It does not apply to the amount you can have in your Isas at a given time – there is no limit on this.
For example, you may have been paying into an Isa for several years, and now have £60,000 in it. Alternatively, let’s say you open a stocks and shares Isa at the start of the year, invest £20,000 and later see your pot grow to £25,000.
Note that while you could choose to deposit the full £20,000 into a cash Isa, stocks and shares Isa and innovative finance Isa, you can only pay in up to £4,000 a year into a lifetime Isa.
While there’s no limit on how much you can have in your Isas at a given time, holding more than £85,000 with a single financial institution at a given time carries a risk.
This is because any money you have saved over this amount will not be covered by the Financial Services Compensation Scheme (FSCS). This means that if a financial institution goes bust, you’re only guaranteed to get back the first £85,000 you have saved with it.
If you go over your £20,000 annual Isa allowance, you won’t be eligible for any tax relief on the extra cash. You may also be contacted by HMRC or your savings provider, and you may need to withdraw the additional sum or have it returned to you.
Benefits of maximising your Isa contribution
The main advantage of paying money into an Isa is that any returns you earn are tax-free. This contrasts with normal savings and investment accounts, where returns may be liable for tax.
While there are tax-free allowances available – namely the personal savings allowance on savings interest, and capital gains and dividend tax allowances for investment returns – Isas are a great option for keeping your money tax-free as the growth compounds over time.
Common Isa misconceptions
You can only open one of each type of Isa each tax year
While it used to be the case that you could only open and pay into one of each type of Isa in each tax year, the Government axed this rule in April 2024. You can now open and pay into as many Isa accounts as you like, whether or not they’re the same type – as long as you don’t exceed your total annual allowance of £20,000.
If you want to invest your money, an Isa isn’t for you
This simply isn’t the case. There are plenty of stocks and shares Isas out there that give you the option to invest money yourself, or have experts or “robo-advisors” do it for you. And just like with other Isas, any returns you make will be entirely tax-free.
You need a lump sum to get started with Isas
While some Isas will require a certain sum to get started, a large number of them let you open an account with just £1 – so you don’t need much at all to get started.