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Cash Isa rules and allowances

How to invest your Isa allowance in line with the latest rules, plus your most common Isa questions answered by Which? Money experts. 

In this article
What is the Isa allowance in 2019-20? How does the Isa allowance work? Will taking money out affect my Isa allowance? How many Isas can I have? How many Isas can I pay into in one year?
What are the limits for Help to Buy Isas and lifetime Isas? What is the Junior Isa allowance? What happens to my Isa allowance when I die? What happens if I exceed my Isa allowance?

What is the Isa allowance in 2019-20?

For the 2019-20 tax year, everyone has an Isa allowance of £20,000 - this is the maximum amount you're allowed to pay into Isas between 6 April 2019 and 5 April 2020. This Isa allowance is unchanged from 2018-19.

If you don't use your annual Isa allowance before the end of each tax year, you'll lose it - and it will start anew on 6 April. 

If you want to skip this and go straight to some of the best cash Isa rates on the market, head to Which? Money Compare.

 

How does the Isa allowance work?

Savers can deposit the full £20,000 into a cash, stocks and shares or innovative finance Isa, or any mix of the three types.

If you're saving up to buy property, there is also the Help to Buy Isa and, for those aged 18-40, the lifetime Isa. Both of these Isas have lower annual limits - but, whatever you pay in will be taken from your £20,000 allowance.

The graph below shows the maximum amount you can pay into each type of Isa within one tax year, up to a total of £20,000.

All UK residents aged 16 or over can have a cash Isa, although you must be 18 before you can open a stocks and shares Isa. Crown employees serving overseas or individuals married to such employees are also eligible to open Isas.

Will taking money out affect my Isa allowance?

Isa rules aren't just about how much you pay in; some accounts are flexible, meaning that you can withdraw money from an Isa account and replace it, without the replacement counting further towards your Isa allowance.

The only condition is that you top up your Isa in the same tax year the withdrawal was made.

If you put it back in the next year, it will count towards your new annual allowance. This also applies to cash held in a stocks and shares Isa and Innovative Finance Isa, but not Junior Isas or lifetime Isas

But there are a few extra caveats, depending on when the money in the Isa was saved. 

 

The Isa only has cash from previous tax years

 

You can withdraw money from this account, and - as long as you put it back before the end of the current tax year, and replace exactly the same amount - it won't go towards your current tax year Isa allowance. 

So, for instance - you paid £20,000 into a cash Isa two years ago, and you take out £3,000. You can replace the £3,000 (and no more), as well as using up your full £20,000 allowance from the current tax year, meaning you can pay in £23,000. 

 

The Isa only has cash from the current tax year

 

You can make a withdrawal from this account, and as long as you replace it by the end of the current tax year (5 April), it won't count towards the current year's Isa allowance.

For example, you've paid £15,000 into a cash Isa account in the current tax year. You withdraw £5,000.

You can then deposit £10,000 into the account; the £5,000 you previously withdrew, and an additional £5,000 that would take the total deposited amount up to £20,000.

 

The Isa contains cash from previous tax years and the current tax year

 

Withdrawals you make in this case are firstly taken from whatever money you've deposited in the current tax year. If you withdraw more than you've deposited in the current tax year, then it will be taken from money you've deposited in previous tax years. 

When you come to pay the money back in - which, again, you must do before the end of the current tax year (5 April) - this works the other way around; money you deposit is first used to refill cash Isas from previous years, and then your cash Isa from the current tax year.

So, say you paid in £20,000 in the previous tax year, and have so far deposited £5,000 in the current tax year. You then make a withdrawal of £15,000. 

The first £5,000 is taken from the cash you've deposited in the current tax year, and the remaining £10,000 will be taken from the £20,000 of the previous tax year. 

Paying the money back, the £10,000 from the previous year is 'topped up' first, then the £5,000 from the current tax year. After that, you'd still have £15,000 left of the current year's Isa allowance to use.

 

Remember - not all Isas are flexible

 

This flexibility is not compulsory and isn't available on all Isas - only 19% of cash Isas and Junior cash Isas offered flexible withdrawals when Which? checked in May 2019 - so you should always check with your provider before withdrawing any money.

If your Isa isn't flexible, it means that any cash you withdraw loses its tax-free status as soon as it leaves the Isa 'wrapper' (account), and even just paying the cash back into the account would count further towards your Isa limit.

It's worth noting that fixed-rate cash Isas require you to keep your money in the account for a certain period of time, so you may face a penalty if you access the money early. 

How many Isas can I have?

There's no specific limit for how many Isas you can hold overall - but you can only pay into one type of each Isa in each tax year (we explain this more fully below).

There are limits on some types of Isas, however. 

You can have several cash Isas, stocks and shares Isas, innovative finance Isas and lifetime Isas, and only pay into one each year - but you can only have one Help to Buy Isa at a time.

How many Isas can I pay into in one year?

In addition to only being able to pay in a certain amount of money in each tax year, another restriction is that you can only pay into one of each kind of Isa in the same tax year.

This means you can only make new deposits into one cash Isa (if you have a Help to Buy Isa this counts as being your cash Isa option), one stocks and shares Isa, one innovative finance Isa and one lifetime Isa.

If you have a Help to Buy Isa, paying into this will count as using up your cash Isa option for the year. The lifetime Isa is exempt from this rule - regardless of whether you have a cash or stocks and shares lifetime Isa account.

If you've already paid into, say, a cash Isa and see a better rate on the market, you may still be able to take advantage of it by transferring your Isa savings to the new provider.

If you're moving money saved in previous tax years, you can choose to move all or part of it to a new Isa without affected your Isa allowance for the current tax year.

However, to move money you've paid in the current tax year, you must move all of it.

Note that not all Isas accept transfers - so check before you apply.

Find out more in our guide to how to transfer your cash Isa

What are the limits for Help to Buy Isas and lifetime Isas?

Help to Buy Isas

Help to Buy Isas are available to first-time buyers at participating banks and building societies, but they're set to close to new savers from 30 November 2019. 

If you're saving up for a deposit you receive a £50 bonus for every £200 saved in the Isa. There is a maximum government bonus of £3,000 on £12,000 of savings. 

You can open your Help to Buy Isa with a one-off deposit of £1,000 to kick things off, and then add £200 per month thereafter.

This means that in the first year of opening a Help to Buy Isa you can save up to £3,400, and then £2,400 for each year afterwards.

Use Which? Money Compare to compare the best Help to Buy Isas.

Lifetime Isas

The lifetime Isa is for adults aged 18-39 only, designed to help them buy their first home or save for retirement.

You can pay in up to £4,000 in each tax year, and the government will add a £1 bonus for every £4 you save - so, that's a bonus of up to £1,000 a year. You can only add savings up to the age of 50.

Find out more in our guide to lifetime Isas.

What is the Junior Isa allowance?

In the 2019-20 tax year, the annual limit for contributions to Junior Isas is £4,368 (up from £4,260 in the 2018-19 year).

Parents and guardians can pay into Junior Isas up to the limit - what they pay in does not come out of their own Isa allowance, as the Junior Isa belongs to the child. 

Once the child turns 18, the Junior Isa account will be changed to an adult Isa, and the individual can decide on what they want to do with the money.

Junior Isas are not eligible for new rules on flexible withdrawals.

Find out more in our guide to the best Junior cash Isas.

What happens to my Isa allowance when I die?

If you're married or in a civil partnership, your spouse can inherit the Isa allowance you've built up through saving into these tax-free accounts - regardless of whether they actually inherit the money in your Isas.

They will get an additional Isa allowance equivalent to your Isa savings Isa at the time of your death, and is referred to as an 'additional permitted subscription', or APS allowance.

The rules are quite complex, so we'd advise reading our guide on Isa inheritance.

What happens if I exceed my Isa allowance?

Because it's possible to have several Isas with different providers, there is a risk that you might pay in too much during a single tax year. 

At the end of the tax year, records for individuals will be checked, so HMRC will know that you've paid in too much money. You may be let off with a warning letter if it's the first time this has happened but it's best to check yourself.

Where HMRC decides to take action, your Isa provider may be instructed to remove over-subscriptions and tax any income or growth related to that money. 

HMRC advises against trying to correct the mistake by drawing money out - you can call its Isa helpline instead on 0300 200 3312. 

 

 

 

 

 

 

 

 

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