How Much Can You Put Into a Cash ISA?

A Cash Individual Savings Account (ISA) provides a tax-efficient way to save money in the United Kingdom. It allows individuals to earn interest on their deposits without incurring UK income tax. Its appeal stems from this tax-free growth, making it a popular savings vehicle.

Understanding the Annual ISA Allowance

The annual ISA allowance, a government-set limit, determines how much an individual can contribute to a Cash ISA each tax year. For the 2024/2025 and 2025/2026 tax years, this allowance is £20,000. This figure represents the total amount that can be saved across all ISA types within a single tax year.

An individual can allocate their entire £20,000 allowance exclusively to a Cash ISA. Alternatively, the allowance can be distributed across various ISA types, such as a Cash ISA, a Stocks and Shares ISA, or an Innovative Finance ISA. For instance, a saver might place £15,000 into a Cash ISA and the remaining £5,000 into a Stocks and Shares ISA, provided the combined total does not exceed the £20,000 limit.

A Lifetime ISA, which has a separate annual limit of £4,000, also counts towards the overall £20,000 annual ISA allowance. Therefore, if someone contributes the maximum £4,000 to a Lifetime ISA, they would have £16,000 remaining to distribute among other ISA types, including a Cash ISA. It is important to note that the annual allowance resets at the end of each tax year, meaning any unused allowance from one year cannot be carried forward to the next.

Specific Rules for Cash ISA Contributions

Recent changes to ISA regulations, effective from April 2024, now permit individuals to open and contribute to multiple Cash ISAs within the same tax year. This offers increased flexibility compared to previous rules that generally restricted contributions to only one new Cash ISA per tax year. Despite this change, the overarching £20,000 annual ISA allowance remains the maximum total amount that can be subscribed across all ISA accounts.

Transferring funds between ISAs follows specific guidelines based on when the funds were originally subscribed. If an individual transfers money from an ISA opened in a previous tax year to a new or existing Cash ISA, this transfer does not count towards the current year’s annual allowance. This allows savers to consolidate or move older tax-free savings without affecting their ability to contribute new funds for the current year.

However, transferring funds that were paid into an ISA during the current tax year operates differently. If a saver transfers all or part of funds contributed in the current tax year from one ISA to another, that amount still counts as part of the current year’s allowance. It is crucial to initiate transfers through the ISA providers, as withdrawing funds directly and then re-depositing them into a new ISA will cause the money to lose its tax-free status and consume a new portion of the allowance. Cash ISA transfers are typically processed within 15 working days.

If an individual accidentally contributes more than the annual £20,000 allowance across their ISAs, the excess amount will not retain its tax-free status. Any interest or gains generated on this over-contributed sum will become subject to UK tax. If an over-contribution occurs within the current tax year, contact your ISA provider to arrange for the removal of excess funds. If the error is identified and rectified quickly, sometimes within 60 days, the provider may be able to “repair” the overpayment without direct involvement from HMRC. For over-contributions made in previous tax years, HMRC will typically contact the individual to address the situation and reclaim any due tax on the unshielded gains.

Eligibility and Practical Considerations

To open a Cash ISA, an individual must be a UK resident for tax purposes. While the age requirement is generally 18 or older, some providers allow individuals aged 16 or 17 to open a Cash ISA. An exception applies to Crown employees working overseas and their spouses or civil partners, who can still open and contribute to ISAs.

The UK tax year commences on April 6th and concludes on April 5th of the following year. This annual cycle dictates when new contributions can be made.

If an individual opens an ISA and subsequently moves abroad, becoming a non-UK resident, they generally cannot make new contributions. However, existing ISAs can typically remain open and continue to benefit from UK tax relief on the funds held within them. While the ISA remains tax-free in the UK, the new country of residence may impose its own taxes on income or gains. Inform your ISA provider upon becoming a non-UK resident.

Cash ISAs are widely available from various banks and building societies across the UK. The specific terms and conditions, including interest rates and access to funds, vary significantly between providers. Comparing offerings is advisable to find an account that best suits your savings goals and preferences.