Individual Savings Accounts (ISAs) are a great option if you’re looking to save or invest in a tax-efficient way. That’s because any interest earned on a cash ISA or returns generated from a stocks and shares ISA are exempt from UK income and capital gains tax (CGT). There are several different types of ISA, and rules around when you can open them. Here, we explain what you need to know.
What are the different types of ISA?
If you live in the UK, you could be eligible to open any of the following ISAs:
- Cash ISA
- Stocks and Shares ISA
- Lifetime ISA (LISA)
- Junior ISA (JISA)
- Innovative finance ISA
At Nutmeg, we offer Stocks and Shares ISAs, Lifetime ISAs, and Junior ISAs. You can learn more about the key features of each ISA here. Not sure whether to open a cash ISA or a stocks and shares ISA? This blog might help, or you can book a call with our friendly wealth services team.
How much can I pay into ISAs (2022/23)?
In the 2022/23 tax year, you can save or invest up to £20,000 across Cash ISAs, Stocks and Shares ISAs, or Lifetime ISAs (the maximum you can contribute to a LISA is £4,000). This £20,000 limit is also known as your ‘annual allowance’. The 2022/23 tax year runs from 6 April 2022 to 5 April 2023.
If you are a parent or guardian, you can also open and contribute up to £9,000 into a Junior ISA. This does not form part of your annual allowance.
How can I split the annual allowance across different ISAs?
*Here at Nutmeg, we don’t offer cash ISAs. But if you have a cash ISA elsewhere with another provider, any contributions you make over the course of the year will still contribute to your overall allowance.
Can I have more than one ISA?
- You can open and contribute to one each of a cash or stocks and shares ISA in a single tax year.
- You can only contribute to one Lifetime ISA in each tax year – either a cash LISA or a stocks and shares LISA.
Can I have ISAs with different providers?
Yes. You can have different ISAs with different UK providers, but you can only open and pay into one of each type of ISA each tax year.
Can I pay into two ISAs in the same tax year?
Yes. You can open and pay into one of each type of ISA each tax year. The most you can contribute is £20,000 (your annual allowance).
For instance, you could save £5,000 into a cash ISA and £15,000 into a stocks and shares ISA.
You wouldn’t be able to save £20,000 into a cash ISA and £20,000 into a S&S ISA, as this would exceed the annual allowance.
Nor would you be able to save £10,000 into one cash ISA, and £10,000 into another cash ISA. Although this is within the £20,000 annual allowance, you can’t pay into two cash ISAs in one tax year.
The exception is a Lifetime ISA. You can hold a cash Lifetime ISA and a stocks and shares Lifetime ISA, but you can only pay into one Lifetime ISA in a single tax year.
Junior ISAs also work slightly differently. Parents or legal guardians must open JISAs, but anyone can pay into them, up to £9,000 per tax year. JISA contributions do not form part of the adult’s annual allowance.
Are there benefits to having more than one ISA?
It depends on your goals and reasons for saving and investing. While all ISAs offer the benefit of tax-efficiency, different ISAs offer different benefits.
- Cash ISAs are a tax-efficient way of saving and carry less risk than stocks and shares ISAs.
- Stocks and shares ISAs invest your money, and therefore offer the potential for long-term returns (which are exempt from taxation). They are higher risk than cash as investment can fluctuate in value and you may get back less than you invested.
- Lifetime ISAs, are typically chosen by those building a deposit for their first home, as for every contribution that is made, the government will add a 25% bonus.
- JISAs are for children under 18. They can be opened by parents or legal guardians, and grandparents or family friends can contribute to them to help give the child get a head start in the future.
Unsure which ISA is right for you? Book a free call with our friendly wealth services team who can help you understand your options.
What should I do if I’ve maxed out my ISA?
If you’ve maxed out your ISA allowance, you have several options.
- You could top up your pension to help fund your retirement. Putting money into a pension has many benefits and is a very tax-efficient way of saving your money. The annual allowance for pension contributions for most people is 100% of their salary or £40,000, whichever is lower.
- If you are a parent or legal guardian, you could consider opening and contributing to a Junior ISA (JISA) for your child. JISA contributions do not form part of your annual allowance, and you can invest up to £9,000 in the current tax year.
- You can open a General Investment Account (GIA), which allows you to invest more money on top of your ISA allowance. It’s important to note that you may need to pay tax on any returns you make.
Can I move money between ISAs?
You can’t move money between ISAs like you would for current and savings accounts.
If you want to move money from one ISA to another, you can do an ISA transfer. This is different than withdrawing the money and putting it into a new ISA, because a transfer preserves your tax-benefits. That said, you may have to pay penalties or give up benefits if you transfer from one ISA or move providers, so it’s best to check before you do so.
Can I close an ISA and open another in the same year?
Not if it is the same type of ISA. For instance, you cannot close a cash ISA and open another in the same year.
If you want to close one type of ISA and open a different kind (for example, if you wanted to close a cash ISA and open a stocks and shares ISA or a Lifetime ISA), that is allowed.
If you want to move providers, but keep the same type of ISA, consider an ISA transfer.
Can I transfer my existing stocks and shares ISA to Nutmeg?
Yes. You can transfer an ISA to Nutmeg at any point throughout the year, and, if you use your provider’s transfer service rather than withdrawing and reinvesting the money yourself, you’ll preserve your tax benefits and annual allowance. Unfortunately, at this time Nutmeg does not accept Lifetime ISA transfers.
How do I avoid capital gains tax on ISA?
When you use an ISA, you do not pay tax on any interest payments or returns you make provided you do not contribute more than the £20,000 annual allowance. If you do contribute more than this, you could be liable for tax on the returns above this amount.
If you do max out your annual allowance, you could consider investing via other tax-efficient vehicles. If you are a parent or guardian, you could open a Junior ISA and start saving for your child’s future. Or, if you’re saving for retirement, you could top up your pension.
Do I need to declare my ISA on my tax return?
No, you don’t need to declare any gains or returns from your ISAs on when filing your tax return.
Have more questions about ISAs? Our wealth services team are here to help. 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. 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 contributions.
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.
A pension may not be right for everyone and tax rules may change in the future. If you are unsure if a pension is right for you, please seek financial advice.
A general investment account may not be right for everyone and tax rules may change in the future. If you are unsure if it is the right choice for you, please seek financial advice.