In this article, we answer commonly asked questions about Individual Savings Accounts (ISAs)—specifically, how many you can hold, the investment limits, and transfer processes.
Can You Have More Than One ISA?
For the current tax year (2023/24), which concludes on April 5th, you are allowed to open and contribute to one of each type of ISA outlined below. You can also maintain ISAs from previous years.
Starting in the 2024/25 tax year, rules will become more flexible, enabling investors to open multiple ISAs of the same type within a single tax year (with the exception of Lifetime ISAs).
This means, for instance, you could contribute to both an instant access and a fixed-term cash ISA in the same year. Remember, tax treatment varies based on individual circumstances and may change.
A cash ISA, typically provided by banks and building societies, is suitable for those seeking a reliable return via a set interest rate, often with instant access to funds. However, while unlikely to result in a loss, there is a minor risk of a bank’s insolvency. The Financial Services Compensation Scheme offers some protection against this.
For investors, the new regulations may permit contributions to various stocks and shares ISAs, potentially across multiple strategies. A stocks and shares ISA is best for long-term investments (three years or more) in equities and bonds, although all investments carry risk of capital loss—unlike cash ISAs.
You can invest in individual stocks or through funds/portfolios that encompass various stocks. Nutmeg offers risk-managed portfolios that invest in a range of exchange-traded funds (ETFs). Keep in mind, however, that returns aren’t guaranteed, and investments may yield less than the amount initially invested.
The new regulations will allow for a Nutmeg-managed portfolio to serve as a core investment alongside individual stocks held in a self-directed ISA with a brokerage.
While these changes increase flexibility in ISA management, they also require careful tracking of contributions to ensure you don’t surpass the annual allowance of £20,000. Additionally, it’s crucial to consult your ISA provider, as some may interpret the new rules differently regarding holding multiple ISAs.
What Types of ISAs Are There?
In addition to cash and stocks and shares ISAs, other options include Lifetime ISAs (available as cash or stocks and shares) and innovative finance ISAs. For saving for children, there is also the Junior ISA (JISA), which will be discussed shortly.
The Lifetime ISA (LISA) is an excellent option for saving for a first home or retirement. Eligible individuals (aged 18 to 39 can start contributing) can invest up to £4,000 annually, with the government providing a 25% bonus—up to £1,000 each year. Certain conditions apply.
Innovative finance ISAs (not offered by Nutmeg) may suit experienced investors, as they invest in peer-to-peer loans and carry higher risks.
Parents or guardians can set up Junior ISAs (JISA) for children under 18, allowing contributions from family and friends. However, the child can only access the funds once they turn 18. More details on JISA rules can be found here.
How Much Can You Invest in an ISA Each Year?
Currently, you can invest up to £20,000 per tax year in ISAs. This limit is subject to change.
When the new tax year starts on April 6, you’ll receive a new £20,000 limit and can open new ISAs of each type with providers that offer differing benefits, such as higher interest rates for cash ISAs or a broader selection of investments for stocks and shares ISAs.
Note that JISAs have their own separate allowance of £9,000 annually. Unlike other ISAs, you can only open one cash JISA and one stocks and shares JISA for each child throughout their childhood.
What If I Contribute to More Than One of the Same Type of ISA in the 2023/24 Tax Year?
Mistakes can happen, and it’s best to address them promptly. If you realize you’ve contributed to more than one of the same type of ISA in a single tax year, contact your ISA providers immediately. It’s also advisable to reach out to HMRC to prevent potential tax issues in the future. The HMRC ISA helpline is available at 0300 200 3300 from 9 am to 6 pm, Monday to Friday.
In most cases, any additional ISA contributions made after the original one may be refunded, and those ISAs would be closed or voided.
As mentioned earlier, starting in the 2024/25 tax year, you’ll be allowed to invest in multiple ISAs of the same type, yet the annual allowance will remain at £20,000.
Can I Transfer One ISA to Another?
During the current tax year (2023/24), you can transfer between ISAs from this year without affecting your annual allowance; however, transfers must be for the entire amount. This depends on your provider accepting transfers and following the proper procedures.
From April 6, new rules will permit partial transfers between providers within the same year, enabling you to move a segment of your ISA while keeping some funds with the existing provider.
Transfers of ISAs from previous years have always allowed partial or full movements without counting as a new ISA.
Make sure to verify if your current or prospective providers have transfer fees or if any benefits may be at risk.
The transferring process is generally executed by the provider you’re transferring to and may take several weeks. They will outline necessary steps, typically beginning with an ISA transfer form.
Don’t withdraw and relocate your funds yourself, as this might result in losing your ISA’s tax advantages.
Transferring ISAs is a common practice to optimize your savings. For cash ISAs, it’s particularly important, as interest rates can change drastically in subsequent years.
If another provider offers a better savings rate, transferring your previously opened ISA may be wise. However, read the terms carefully and ensure you’re comfortable with any lock-in periods or conditions.
Stocks and shares ISAs and LISAs can also be transferred, but consider the long-term investment nature before proceeding. Allowing your investment to grow over several years, benefitting from compound returns, may be more advantageous than moving it. Remember that investments will remain out of the market during the transfer.
Nutmeg allows ISA transfers, with contributions going into our risk-rated managed global investment portfolios. Learn more about transferring your ISA to Nutmeg.
For insights on why transferring your ISA may be beneficial, check out our blog post, “Five Reasons to Transfer Your ISA.”
Can I Transfer from a Cash ISA to a Stocks and Shares ISA?
Yes, you can switch from a cash ISA to a stocks and shares ISA and vice versa. You may wish to move funds from a low-interest cash ISA into a stocks and shares ISA to potentially outpace inflation over the years.
Keep in mind that investments can be volatile, and you might lose money or see less than your initial investment returned. Always maintain easily accessible emergency savings alongside your investments.
Alternatively, if your stocks and shares ISA has grown, you might decide to mitigate risk by transferring it back to a cash ISA. This can be especially relevant if you’re nearing retirement and wish to utilize these funds alongside your pension without worrying about potential investment losses.
Nutmeg’s experts are available for free financial guidance to help you navigate your options, including ISA transfers. Schedule a free call today.
Risk Warning
As with all investments, your capital is at risk. The value of your Nutmeg portfolio can fluctuate, and you may not get back the full amount you initially invested. Tax treatment varies based on individual circumstances and may change.
With Lifetime ISAs, if you withdraw funds before age 60 and it’s not for your first home purchase, a 25% government withdrawal charge applies. Opting out of a workplace pension to fund a Lifetime ISA may result in lost employer-matched contributions, and your entitlement to means-tested benefits may also be affected. Seek financial advice if unsure whether a Lifetime ISA is right for you.
To open a Nutmeg JISA, your child must be under 16, and funds cannot be accessed until the child turns 18. Consult a financial advisor if you’re uncertain whether a Junior ISA is the best option for you and your child.
Always check for potential benefits loss and any fees before transferring ISAs, LISAs, or JISAs.
Feel free to reach out if you need further modifications!