How Much Can You Contribute to an ISA?

An Individual Savings Account (ISA) provides a tax-efficient way for individuals in the United Kingdom to save or invest. Money held within an ISA grows free from UK income tax and capital gains tax. This encourages personal savings by offering tax advantages over standard accounts. Individuals can choose from various ISA types, each designed for different financial goals.

The Annual ISA Contribution Limit

The UK tax year runs from April 6th to April 5th. A new ISA allowance becomes available at the start of each tax year. For the 2024-2025 tax year, the maximum an individual can contribute across all their ISAs is £20,000. This allowance resets annually.

This £20,000 limit is a personal allowance, applying to the combined total of contributions made to most ISA types. For example, contributing £10,000 to a Cash ISA leaves £10,000 of the annual allowance for other ISA types. Specific sub-limits exist for certain ISA types, which are either part of or separate from the overall £20,000 limit. These sub-limits dictate how much can be placed into particular ISA products.

Navigating Different ISA Types

Various ISA types cater to diverse savings and investment objectives, each with specific rules and contribution limits that interact with the overall annual allowance.

Cash ISA

A Cash ISA functions similarly to a traditional savings account, holding money that earns interest. Contributions count directly towards the overall £20,000 annual ISA limit. This type is generally chosen by individuals prioritizing capital preservation and easy access to their funds.

Stocks & Shares ISA

A Stocks & Shares ISA allows individuals to invest in assets such as company shares, bonds, and investment funds. Any growth from these investments, including dividends and capital gains, remains tax-free within the ISA. Contributions also fall under the £20,000 annual ISA limit. This option suits those comfortable with investment risk seeking higher long-term returns.

Lifetime ISA (LISA)

The Lifetime ISA (LISA) helps individuals save for a first home or retirement. Those aged 18 to 39 can open a LISA and contribute up to £4,000 each tax year. This £4,000 limit is part of the overall £20,000 annual ISA allowance. The government adds a 25% bonus to contributions, up to £1,000 per year, until age 50. Funds can be withdrawn without penalty for a first home purchase (up to £450,000) or from age 60; otherwise, withdrawals incur a 25% government charge.

Innovative Finance ISA (IFISA)

An Innovative Finance ISA (IFISA) allows individuals to lend money through peer-to-peer lending platforms, earning tax-free interest. Contributions also count towards the overall £20,000 annual ISA limit. This type carries higher risks compared to Cash ISAs due to the nature of peer-to-peer lending. It offers an alternative for potentially higher returns than traditional savings.

Junior ISA (JISA)

The Junior ISA (JISA) is a long-term savings account for children under 18. For the 2024-2025 tax year, the annual contribution limit for a JISA is £9,000. This limit is entirely separate from an adult’s own £20,000 ISA allowance. Money contributed to a JISA belongs to the child but cannot be accessed until they turn 18, at which point it converts into an adult ISA. Parents or legal guardians can open a JISA, and anyone can contribute to it, up to the annual limit.

Key Rules for ISA Contributions

Individuals must meet specific eligibility criteria to open and contribute to an ISA.

Eligibility

For most adult ISA types (Cash, Stocks & Shares, Innovative Finance), an individual must be at least 18 years old. A Lifetime ISA requires the individual to be between 18 and 39 years old. Junior ISAs can be opened for a child of any age by a parent or legal guardian, and the child can manage the account from age 16, though funds remain locked until age 18.

Residency

A fundamental requirement for contributing to an ISA is being a resident in the UK for tax purposes. If an individual moves abroad, they may not be able to contribute new funds to their ISA, though existing ISA savings can generally remain tax-free. Certain exceptions might apply for Crown employees serving overseas.

Contribution Limit Per Type

In any given tax year, an individual can only subscribe new money into one Cash ISA, one Stocks & Shares ISA, one Innovative Finance ISA, and one Lifetime ISA. This means an individual cannot open two new Cash ISAs and contribute to both in the same tax year. However, they can open and contribute to one of each type of ISA within the same tax year, provided they stay within their overall annual allowance.

Over-Subscription

If an individual accidentally contributes more than their annual allowance or breaches other contribution rules, this is known as over-subscription. Her Majesty’s Revenue and Customs (HMRC) monitors ISA contributions and will identify any excess funds. The amount contributed above the limit will be removed from the ISA wrapper, and any tax benefits associated with that excess will be nullified. This could result in a requirement to pay tax on interest, dividends, or gains generated by the over-subscribed amount.