ISA rules

What is an ISA?

ISA rules are set by HMRC to determine how many ISAs you can open a year and how much money you are able to put into them tax free –something also known as your ‘ISA allowance’.

These rules allow people to invest in markets via a stocks and shares ISA, to save in cash via a cash ISA, to put money away for later in life or for a first-time property purchase via a Lifetime ISA (LISA), to put money aside for a child under 18 via a Junior ISA (JISA), or to invest by peer-to-peer lending in an Innovative Finance ISA. 

At Nutmeg, we offer a stocks and shares ISA, stocks and shares Lifetime ISA and a stocks and shares Junior ISA.

The rules are subject to change - and change they do - so it’s a good idea to keep abreast of the latest guidance and limitations to ensure you’re getting the most out of your annual tax-free ISA allowance - and, conversely, that you’re not breaking any ISA rules and exposing your investments to unnecessary taxes.

What are the rules that apply to all ISAs?

• You can open one of each form of adult ISA per year.

• Your tax-free allowance for adult ISAs is £20,000 for the 2023/24 tax year. 

• You do not pay tax on the interest on cash in an ISA or on the income or capital gains from investments in an ISA.

What does this mean? 

It means you can only open one of each type of ISA within a tax year and you can only pay in a total of £20,000 into all your ISAs within a tax year (see below for JISA rules). You do not need to declare any ISA interest, income or capital gains on a tax return.

For example: In the same tax year, you could open and contribute £4,000 into a LISA, open a new stocks and shares ISA and put £6,000 into that and then also put £10,000 into a pre-existing cash ISA.

What are the rules that apply to ISA transfers?

• ISAs can be transferred between providers (Nutmeg provides an easy to use and transparent service for this).

• You can also transfer between different types of ISA.

• If you are transferring money that has been put into another ISA this tax year, you must transfer all of it.

• If money is from previous years you can choose to transfer it in part or completely.

• Transferring ISAs does not use any of your current year’s ISA allowance.

What are the stocks and shares ISA rules?

• You can only open one each tax year.

• You can only pay into one each tax year.

• The maximum you can put in is £20,000 a year (your whole ISA allowance).

• The assets held in a stocks and shares ISA can include shares, funds, corporate bonds and government bonds such as US treasuries and UK gilts.

• You can transfer up to £200,000 of employee shares into a stocks and shares ISA if you have shares in a Save As You Earn Scheme or Share Incentive Plan, if your ISA provider agrees to the transfer.

What are the LISA rules?

• You can only open one each tax year.

• You can only pay into one each tax year.

• You can put a maximum of £4,000 into a LISA in a given tax year.

• The government will top up your LISA with 25% of the value of your contributions up to £1,000. For example: if you put the full £4,000 into a LISA, the government will add an additional £1,000.

• You can withdraw from your LISA once you are over the age of 60; or if you are terminally ill, with less than 12 months to live. if you are using the money to buy your first home for which you must be paying £450,000 or less. You must also have a mortgage, a solicitor or conveyancer and buy the property at least 12 months after opening the LISA.

• If you withdraw from your LISA outside of these conditions you must pay a 25% penalty on the value of your withdrawal.

• You can only start a LISA if you are between the ages of 18 and 39.

• You must pay into your LISA before you are 40.

• After you are 50 you can no longer pay into your LISA. The Lifetime ISA will remain open and any money will continue to earn interest, on a cash LISA, or returns, on a stocks and shares LISA.

What are the rules that apply to JISAs?

• The JISA and the money in it belongs to the child in whose name it was set up.

• You must be the parent or guardian of the child to set up a JISA.

• It is possible for friends and family to contribute to a child’s Junior ISA (provided the Junior ISA provider allows this). 

• The Junior ISA allowance for the 2023/24 tax year is £9,000.

• Each child can only ever have one cash JISA and one stocks and shares JISA in their name.

• The £9,000 JISA allowance can be split between a child’s stock and shares JISA and their cash JISA –the total amount paid into them each year cannot exceed this amount.

• Children who are 16 or 17 can open their own JISA – as well as an adult cash ISA.

• Once the child turns 18, they can withdraw from the JISA that was set up in their name.

• You can transfer money between a child’s JISAs.

• You can transfer money from a child trust fund (CTF) to a JISA, but your child cannot hold both.

• You cannot transfer money between a JISA and an adult ISA.

• Only the ‘registered contact’ (the parent or guardian who set up the JISA) can manage the JISA, until the child is 16 when they can become the registered contact.

• JISAs automatically become adult ISAs once the child turns 18.

• If a child becomes terminally ill the registered contact can withdraw money from the child’s JISA account.

What are the rules that apply to cash ISAs?

• You can only open one each tax year.

• You can only pay into one each tax year.

• You can put in a maximum of £20,000 in each year (your whole ISA allowance).

• Innovative Finance ISAs are made up of peer-to-peer loans and crowdfunding shares. However, if you hold any of these elsewhere you cannot transfer them into your Innovative Finance ISA.

• You can transfer from other ISAs, but if the amount transferred has been contributed to the other ISA this tax year then all of it must be transferred.

What are the ISA inheritance rules?

• If an ISA holder dies, their spouse or civil partner can inherit their ISA allowance.

• Their spouse or civil partner will be able to add a tax-free allowance equal to the value of the deceased’s ISA when it is closed. The deceased’s ISA can stay open for up to three years from the date of their death.

• If the spouse or civil partner passed away between 3 December 2014 and 5 April 2018 then different rules might apply.

ISA rules are subject to change and the Government reviews them often. The above provides an overview of what you can hold in your ISA, which ISAs you can open and when and how much you can pay into them within a tax year. If you are still unsure you can check the government ISA website or contact our support team via support@nutmeg.com.   

We hope this helps you make the most of ISAs; they can be a great way for an individual to start investing and with Nutmeg you can start a stocks and shares ISA from as little as a £500.