An ISA is a means of saving or investing that is not subject to tax that may be levied on other types of account. As such, an ISA can help to improve your financial outlook through reducing the amount of tax you pay on your cash or investments. There are, though, limits on how much you can invest in the different types of ISA each year. Read on to find out what these limits are for the range of ISAs available.
Annual allowances for different ISAs
You can contribute up to £20,000 per year across the following five types of ISA. This £20,000 can be apportioned however you please, although there is a restriction on Lifetime ISAs, of £4,000 per year, and on Help to Buy ISAs, of £2,400 per year.
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- Cash ISA: essentially a savings account that is not subject to income tax.
- Stocks and Shares ISA: provides the opportunity to invest in listed companies and a variety of other assets such as bonds. No capital gains, income tax or dividend tax is applied on amounts invested through a Stocks and Shares ISA.
- Innovative Finance ISA: used for peer-to-peer lending. Cash is lent to other individuals as part of a peer-to-peer network. This ISA is also not subject to income tax.
- Lifetime ISA: can be used to fund the deposit on a first home or can be withdrawn without penalty after the age of 60. The annual contribution limit is £4,000 per year. A government bonuses is added that amounts to 25% of contributions per year, up to a limit of £1,000 per year.
- Help to Buy ISA: can be used to purchase a first home. Up to £2,400 may be invested per year. This ISA also benefits from government bonuses that amount to 25% of contributions per year, up to £600 in bonuses per year.
In addition to the types of ISA above, there is also the Junior ISA, the annual allowance for which is separate from the combined £20,000 allowance for the other types of ISA:
- Junior ISA: up to £4,368 can be invested per year on behalf of a child, who then takes control of the ISA at the age of 18. The annual allowance for a Junior ISA is separate from the combined £20,000 allowance for the other types of ISA. A Junior ISA benefits from the same tax advantages as a Stocks and Shares ISA.
Do repayments count towards annual allowance?
Some ISAs are flexible. They allow cash to be withdrawn and paid back within the same tax year without reducing the annual allowance.
Other ISAs, though, are not flexible. The annual allowance is fixed and amounts withdrawn above the £20,000 allowance per year cannot be repaid in full within the same tax year.
Whether an ISA is flexible or not depends on the provider, so it is worth checking this before applying.