How Much Can I Pay Into an ISA Each Tax Year?

Individual Savings Accounts (ISAs) are tax-efficient savings and investment vehicles available in the United Kingdom. These accounts allow individuals to save or invest money without paying UK income tax or capital gains tax on the returns generated. This article clarifies the specific amounts that can be contributed to various ISA types each tax year.

Understanding the Annual ISA Allowance

The UK government sets an annual ISA allowance, representing the maximum amount an individual can contribute across most adult ISA types within a single tax year. For the 2024-2025 tax year, this allowance is £20,000. This limit applies per person. The UK tax year begins on April 6th and concludes on April 5th of the following year. The allowance resets on April 6th, and any unused allowance from a previous tax year cannot be carried forward.

This £20,000 allowance is a combined total, not a per-account limit for each ISA type. For example, if an individual contributes £10,000 to one ISA type, they would have £10,000 remaining of their overall allowance to contribute to other eligible ISA types within the same tax year. It is important to monitor contributions to ensure the total amount paid into all adult ISAs does not exceed this overall limit.

Contribution Rules for Adult ISA Types

The £20,000 annual ISA allowance can be allocated flexibly across various adult ISA products.

Cash ISA

A Cash ISA is for tax-free savings. You can contribute up to the full annual ISA allowance of £20,000 into a Cash ISA.

Stocks & Shares ISA

A Stocks & Shares ISA allows individuals to invest in assets like company shares, bonds, and investment funds, without paying UK capital gains tax or income tax on profits. You can subscribe up to the entire £20,000 annual allowance into a Stocks & Shares ISA.

Innovative Finance ISA (IFISA)

An Innovative Finance ISA (IFISA) facilitates tax-free returns on peer-to-peer loans and crowdfunded debt. The full annual ISA allowance of £20,000 can be directed into an IFISA, either exclusively or in combination with other ISA types.

Lifetime ISA (LISA)

The Lifetime ISA (LISA) helps individuals save for their first home or retirement. The LISA has an annual contribution limit of £4,000, which counts towards the overall £20,000 annual ISA allowance. For every £4 contributed to a LISA, the UK government adds a 25% bonus, up to a maximum of £1,000 per tax year.

To open a LISA, an individual must be between 18 and 39 years old, and contributions can continue until age 50. Funds can be withdrawn tax-free if used for a first home purchase (up to £450,000) or from age 60. Withdrawals for other purposes incur a 25% government charge on the withdrawn amount.

Contribution Rules for Junior ISAs

Junior ISAs (JISAs) are long-term savings accounts for children under 18, offering tax-free growth. JISAs have their own annual allowance, separate from the adult ISA allowance. For the 2024-2025 tax year, the maximum amount that can be paid into a JISA is £9,000 per child.

Anyone can contribute to a child’s JISA, provided total contributions do not exceed the £9,000 annual limit. Funds belong to the child but cannot be accessed until age 18. At 18, the JISA automatically converts into an adult ISA, and standard adult ISA rules apply. A child can hold both a Junior Cash ISA and a Junior Stocks & Shares ISA, splitting the £9,000 allowance between them.

Managing Your ISA Contributions

As of April 6, 2024, individuals can subscribe to multiple ISAs of the same type (e.g., two Cash ISAs or two Stocks & Shares ISAs) within the same tax year. The overall annual ISA allowance of £20,000 for adults still applies across all contributions.

Transferring ISA funds between providers or different ISA types generally does not count towards the current year’s allowance. If you transfer funds accumulated in an ISA from a previous tax year to a new provider or a different ISA type, this transfer does not impact your current year’s £20,000 allowance. If you transfer funds contributed in the current tax year, the transfer must be for the entire amount contributed that year to retain its tax-free status. Some ISAs are “flexible,” allowing you to withdraw and replace money within the same tax year without affecting your annual allowance, provided the replacement occurs into the same account.

If an individual overcontributes, Her Majesty’s Revenue and Customs (HMRC) will identify the excess amount. Any interest or gains earned on the overpaid portion will not be tax-free and may be subject to income tax or capital gains tax. Contact your ISA provider promptly. The provider may be instructed by HMRC to remove the excess funds and any associated earnings. If the overpayment occurred in a previous tax year, HMRC will contact the individual to address the issue and reclaim any tax due.