If you’re wondering how many ISAs you can have, then you’re far from alone. There are now a variety of different ISAs available, so many Brits are scratching their heads over what the different types are, and how many ISAs any one person can hold.
Here’s the simple answer: You can have as many different ISA accounts as you want. As with current accounts or share-dealing accounts, if you have a whole bunch of ISA accounts, then managing your personal finances may become more of a hassle. But nobody’s going to stop you from opening many ISA accounts over time.
However, you are limited in a couple of ways. First, each tax year runs from 6th of April and, currently, you’re allowed to contribute up to £20,000 across your ISAs during the tax year. You can do that however you want, but when you tally all of those contributions, they better be less than that £20,000 limit, or HMRC will not be happy with you. Along with that, you may only open one of each type of ISA per year. You can, for instance, open a stocks and shares ISA with Hargreaves Lansdown this tax year and then one with interactive investor next tax year. But you can’t open both this year.
Of course, understanding how much you can invest in ISAs over a given tax year (£20,000) and how many of each type of ISA you can open per tax year (one) is only part of the puzzle. The other part is understanding what types of ISAs are available to you, and why you might want to take advantage of each.
So let’s take a brief look at the different types of ISA.
A cash ISA is essentially a savings account that benefits from favourable tax status. No income tax is charged on the interest earned within a cash ISA, which could make it appealing for consumers who currently pay tax on their cash balances.
However, the first £1,000 of interest income on bank balances is tax free (thanks HMRC!). Combine that with the current low interest rates, and you end up with a situation where most people will not end up paying taxes on interest whether or not they’re using a cash ISA. This won’t be the case for everyone, and cash ISAs will still make sense for some folks with a big pile of savings, but be sure to figure out whether a cash ISA will actually create tax savings for you before bothering with an extra account.
Stocks and shares ISA
A stocks and shares ISA is a means of investing in the stock market, as well as other financial products such as bonds, without paying tax. Over the long run, a stocks and shares ISA could save an investor significant sums in tax, since the dividend allowance has been reduced to £2,000 per year and the annual capital gains tax allowance of £12,000 may not stretch very far over the long run.
Stocks and shares ISAs are relatively low cost and easy to open, although charges vary by provider. As such, it is worth shopping around for a stocks and shares ISA. While potentially higher risk than a cash ISA, the returns that may be on offer could be substantially higher.
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Innovative finance ISA
An innovative finance ISA is a means of investing in crowdfunding opportunities, as well as peer-to-peer lending. Crowdfunding opportunities involve a large number of people taking small stakes in companies, while peer-to-peer lending is where consumers lend to other consumers.
As such, an innovative finance ISA may be riskier than a cash ISA, but its returns could also be more attractive. Income and capital gains made within an innovative finance ISA are tax-free.
A lifetime ISA (often abbreviated “LISA”) is a means of saving for a first home or for retirement. It can be opened by anyone under the age of 40, and it’s possible to continue paying into a lifetime ISA until age 50. The government kindly pays a bonus of 25% on all contributions, and there’s no tax on income or gains within a lifetime ISA.
The current maximum you can contribute to a LISA during a tax year is £4,000, and whatever you contribute gets deducted from your annual ISA allowance. Withdrawals can be made without incurring penalties after age 60 or at any time for a first home. Apart from those circumstances, you’ll get hit with a 25% fee if you pull money out.
Help to Buy ISA
A Help to Buy ISA is designed to help you save for a first home. Each tax year, you’re allowed to contribute up to £2,400, though you’re allowed an additional £1,200 in the first month following account opening. As you might guess, no taxes are charged on income received within this ISA account.
As with the LISA, the government helps you out with your savings, topping up your contributions with a bonus of 25%, up to a maximum of £3,000 during a lifetime. Withdrawals can be made at any time, but are not entitled to a bonus unless they are used to purchase a first home.
It’s true, there are a dizzying array of ISAs available to us today. On the one hand, that’s great, since it gives us a variety of opportunities to save tax free, or even bag bonuses paid out by the government. But at the same time, it can make it more difficult to navigate the rules of how much to contribute and how many accounts we can open. Not to mention trying to choose which ISAs make sense to use.
The most important things to remember are:
- Right now at least, you’re maxed out at contributing £20,000 across all ISAs during the tax year.
- While you can have multiple accounts for any specific ISA with different providers, you can only open one of each type of ISA per tax year. And frankly, unless you have good reasons (and there are good reasons out there), you’re probably best served keeping your total number of accounts to a minimum, as that’ll make managing your finances easier.
- There are circumstances that make each type of ISA better and worse for a given saver, so do take the time to sit down and think about which ones make the most sense for you to ensure you’re making the most of these programmes!
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