Here we address some of the most common questions our team are asked about ISAs: exactly how many can you have? How much can you invest? And how can you transfer?
Can you have more than one ISA?
The simple answer is, yes, as there’s no limit to the number of ISAs you can have. However, you can only contribute to one of each type of ISA in any single tax year, namely stocks and shares ISAs, cash ISAs, Lifetime ISAs (both cash or stocks and shares types), and innovative finance ISAs. There are also Junior ISAs, which we’ll cover in more detail later.
Each type of ISA may suit a different financial goal, while still offering tax-efficiency with no tax paid on growth, income or returns.
A cash ISA, as offered by banks and building societies, is suitable for those who want certainty of return through a stated interest rate, often with the possibility of instant access to their cash. Note however, that while a cash ISA is very unlikely to lose you any money, there is a small possibility of a bank becoming insolvent. The Financial Services Compensation Scheme provides some protection for deposits in the unlikely event of this happening.
A stocks and shares ISA is ideal for those who want to put money away for the longer term - at least three years - by investing in equities and bonds. You can invest in individual stocks, or through funds or portfolios that invest across different stocks and shares. At Nutmeg you can invest via risk-managed portfolios that hold a variety of exchange-traded funds (ETFs). Note that returns aren't guaranteed, and you may get back less than you invest.
Similarly, a Lifetime ISA (LISA) may be more suitable for those eligible (the first contribution must be between the ages of 18 and 39) who wish to invest for their first home or towards their retirement. Conditions and exclusions apply, which we outline here.
Innovative finance ISAs (which are not offered by Nutmeg) may be suitable for more experienced investors as they invest in peer-to-peer loans and are considered higher risk.
Read more: Which ISA is right for me?
How much can you invest in an ISA each year?
You are allowed to put £20,000 per tax year into ISAs under current rules. This allowance may change in the future.
You can only contribute to one of each of the different types of ISA in any tax year: cash, stocks and shares, LISAs, and innovative finance. As a new tax year starts on 6 April, you have a fresh £20,000 allocation and you may then open a new ISA of each type if you want to, perhaps with a provider that offers different benefits. For example, they may offer a higher interest rate for cash ISAs, or a wider selection of investments for stocks and shares ISAs.
In addition, you may have heard of Junior ISAs (JISAs), which can be set up for a child and have a separate allowance of £9,000 per tax year. These are different to ISAs and you can only open one cash, and one stocks and shares JISA throughout childhood.
What happens if I pay into more than one of the same type of ISA in a tax year?
Accidents can happen, and it’s best to deal with this head on. If you think you have paid into more than one of the same type of ISA in a single tax year, you should contact your ISA providers straight away. You should also get in contact with HMRC to minimise any tax complications down the line. The HMRC ISA helpline is 0300 200 3300, open from 9am to 6pm Monday to Friday.
It’s likely that the provider(s) of any subsequent ISAs that you opened after the original one in any tax year would refund any payments and close or void the ISA.
Can I transfer one ISA into another?
Yes, you can transfer an ISA into another of the same type without impacting your annual allowance, so long as your provider accepts transfers and that you take the correct steps. Transferring your ISA does not count as opening a new one.
Before you start the transfer, you should also check whether your current or new providers will charge a fee for transferring.
The transfer itself is usually handled by the provider of the ISA that you are transferring into, and can take several weeks to complete. They should outline the steps for you, starting by providing you with an ISA transfer form. It’s important not to withdraw and transfer your money yourself as you will lose the tax advantages of the ISA.
Transferring ISAs is common and can be a good practice to make the most of your money. This is especially so for cash ISAs, where the initial headline interest rate that you opened an ISA with may change in subsequent tax years. If another provider offers a better savings rate, it may make sense to transfer your ISA opened in a previous tax year. However, do first check the small print and make sure that you are comfortable with any lock-in periods or terms and conditions.
Transfers may also be possible for stocks and shares ISAs and LISAs, though first consider the long-term nature of investing. Leaving your pot to hopefully grow over a number of years, with the added benefit of compound returns on ongoing contributions, may be a better strategy than to transfer.
We offer the ability to transfer your ISA to Nutmeg, with contributions going into our risk-rated managed global investment portfolios. Discover how to transfer your ISA to Nutmeg.
We have outlined the benefits of ISA transfers in our recent blog, Five reasons to transfer your ISA.
Can I transfer from a cash ISA into a stocks and shares ISA?
Yes, you can transfer from a cash ISA into a stocks and shares ISA, and vice versa. You may decide that you have the budget to transfer money from a low paying interest rate cash ISA into a stocks and shares ISA, which has greater potential to beat inflation through investing over several years. However please remember that investing can be volatile, and you may get back less than you invest. You should always have easily accessible emergency savings in place alongside your investments.
Alternatively, your stocks and shares ISA may have grown and you now wish to reduce the risk and move it into a cash ISA. Perhaps you are now close to retirement, and wish to use this money alongside your pension, without the risk of potential future investment losses.
Nutmeg's experts are on hand with free financial guidance should you need to speak to someone about your options, including ISA transfers. Book a free call today.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek financial advice.
A stocks and shares Lifetime ISA may not be right for everyone and tax rules may change in the future. You must be 18–39 years old to open one. If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty. So you may get back less than you put in.
Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension. If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions. If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice.
To open a Nutmeg JISA, your child must be under the age of 16 and funds cannot be withdrawn until your child turns 18. Tax treatment depends on your individual circumstances and may be subject to change in the future. If you are unsure if a Junior ISA is the right choice for you and your child, please seek financial advice.