The simple answer is, if you want to, you can have a lot. And there could be advantages to having multiple ISAs. So, let’s take a look at some scenarios.
First, a reminder. The individual savings account, or ISA, is a great incentive for eligible UK residents to save and invest money for their future while reducing the tax they pay – as any interest earned on a cash ISA or returns generated from a stocks and shares ISA are exempt from UK income or capital gains tax. However, ISAs have evolved since they were first introduced in 1999 and there are rules set by HMRC that are important to keep in mind. The two main ones are:
1. You are only allowed to put £20,000 per tax year into ISAs. This is also referred to as ‘ISA wrapped’.
2. You are only able to contribute to one of each type of ISA in a tax year. There are four main types of ISA you can use: cash, stocks and shares, Lifetime and Innovative Finance. In addition, you may have heard of Junior ISAs, which can be set up for a child and have a separate allowance of £9,000 per tax year.
With the tax benefits of an ISA, understandably, a common question among savers and investors is: “How many ISAs can I have?”
The answer looks simple enough:
Every tax year you can open one new ISA of each type, but you can’t put money into more than one of the same types of ISA in the same tax year.
(However, this rule does not apply for JISAs. There the answer is “only one cash and only one stocks and shares throughout the child’s life”.)
So, it is perhaps reasonable to assume that you can have four ISAs – one of each type. However, this doesn’t take into account previous ISAs from previous tax years. Let’s look at an example. Bob is a 35-year–old hypothetical saver and investor. We will follow his fictional ISA journey for a few tax years and try to clarify the answer to our “How many ISAs can I have?” question. Our main assumption is that the annual allowance will be £20,000 every tax year, and there will not be any negative or positive surprises from HMRC, and that Bob has decided how to split his ISA allowance to suit his circumstances.
Tax year 2020/21
Bob gets a £10,000 bonus and opens a cash ISA with Bank A, where he deposits the £10,000. Although this is only half his ISA allowance for this tax year, he cannot rollover the unused allocation to another tax year – there’s no £30,000 ISA allowance next year!
Tax year 2021/22
Bob wants to start investing and, after doing his research with the help of our ISA calculator and FAQs, he decides to open a stocks and shares ISA with Nutmeg. He chooses to invest £15,000, which leaves £5,000 of his £20,000 annual allowance for the 2021/22 tax year. What should he do? His options are:
- go back to Bank A and put the £5,000 in the same cash ISA he holds from last tax year or
- take advantage of a better interest rate by opening a new cash ISA with Bank B.
Bob decides to open a Cash ISA with Bank B and deposits the £5,000.
What he cannot do: he cannot split the £5,000 between two different cash ISAs in the same tax year. That is against HMRC rules.
Tax year 2022/23
Bob wants to become a homeowner one day (who doesn’t?), so he looks at Nutmeg’s Lifetime ISA (LISA). LISAs are an ISA option for those aged between 18 and 39 with the specific goal of saving or investing for a first home or putting money aside for retirement. The incentive is Bob’s investment, up to a £4,000 per tax year limit, will be boosted by the 25% government bonus. So, he deposits £4,000 into a Nutmeg Lifetime ISA and the government add £1,000 (25%). It’s worth noting that while Bob has £5,000 in his Lifetime ISA – his £4,000 contribution and the £1,000 government bonus – he has only contributed £4,000, so he still has £16,000 of his annual ISA allowance left.
He adds £10,000 to his Nutmeg stocks and shares ISA and has £6,000 left, which he definitely wants to put into a cash ISA to give him cash liquidity.
Who will get the £6,000 Bob has left? Is it Bank A? Is it Bank B? Could it be a new entrant Bank C? Bob can only choose one, as he can only contribute to one cash ISA in a tax year. He decides to open a new cash ISA with Bank C, remembering that Bank C must get the full £6,000.
Tax year 2023/24
Bob is ready to dip his toes in the world of Innovative Finance ISAs. Just a little though. He decides to open an Innovative Finance ISA with a peer-to-peer investing platform that allows him to lend to a property developer. He deposits £1,000, leaving him with £19,000 of his annual ISA allowance.
Still determined to get a foot on the property ladder, Bob adds £4,000 to his Nutmeg LISA. The dream house is £5,000 closer – remember the government will add £1,000 to Bob’s £4,000 contribution.
He still wants to invest £10,000 in a stocks and shares ISA. He thinks hard about his options:
- He can open a stocks and shares ISA with one of Nutmeg’s competitors. If he does, he will have to deposit the full £10,000 with them as he can only deposit with one provider (for a particular ISA type) each tax year. He can’t decide to add £1,000 to experiment with this new provider and put £9,000 with Nutmeg.
- He can continue and contribute the full £10,000 to Nutmeg for the tax year.
Bob decides to add the full £10,000 to his Nutmeg stocks and shares ISA.
For his cash ISAs he has £5,000 left. He is free to do whatever he wants, as long as he sticks to the ’one type of ISA per tax year provider’ rule.
Bob decides to add it to his cash ISA with Bank C.
Tax year 2024/25
Welcome Ella, Bob’s new baby daughter! As she is under 18, she has her own tax-free annual allowance of £9,000 for a Junior ISA (JISA) that Bob decides to open with Nutmeg. This £9,000 is separate to Bob’s £20,000 allowance and belongs to Ella.
The rules about JISAs are a little more straightforward than adult ISAs: each child can have one cash Junior ISA and one stocks and shares Junior ISA throughout their life. So, as Bob has decided to open a stocks and shares JISA for Ella with Nutmeg, if he wishes to have a different stocks and shares JISA in a different tax year he must transfer the existing Nutmeg JISA to the new provider.
If he chooses to also open a cash JISA for Ella, the total amount contributed to her JISA in a tax year must not exceed the £9,000 annual allowance.
So, how many ISAs can you have? A lot!
In just five tax tears Bob has set up
- Three cash ISAs
- One stocks and shares ISA
- One Lifetime ISA
- One Innovative Finance ISA
- Plus one Junior ISA for Ella
Depending on your timeframe as an investor the number could reach triple digits. Let’s do the maths for an 18-year old who invests over 30 years:
- 30 cash ISAs: one every tax year
- 30 stocks and shares ISAs: one every tax year
- 21 Lifetime ISAs, one every tax year (up to the age of 40)
- 30 Innovative Finance ISAs
That’s a lot of ISAs, in fact 111, to be precise!
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.