How to invest your Isa allowance in accordance with the most recent laws, as well as answers to your most frequently asked Isa questions from the experts at Which? Money.
What will the ISA contribution limit be in the 2022-23 tax year?
Everyone has an Isa allowance of £20,000 for the tax year 2022-2023, and this is the maximum amount that can be contributed to Isas between April 6, 2022, and April 5, 2023. The tax year 2022-2023 begins on April 6, 2022, and ends on April 5, 2023.
This Isa allowance will carry over into the 2021-22 tax year without alteration.
If you do not use your yearly Isa limit by the end of the tax year, you will lose it, and you will receive a brand new allowance beginning on April 6 of the following year.
How exactly does the contribution to an Isa work?
Savers have the option of putting all £20,000 into either a cash, stocks and shares, or innovative finance Isa, or they can put it into any combination of the three.
Both the Help to Buy Isa and the lifetime Isa are options for those who are putting money away with the intention of purchasing a home in the future. However, the Help to Buy Isa is no longer accepting new applicants. Both of these Isas have lower yearly contribution limits; however, any money that you put in will come out of your total allocation of £20,000.
The following graph illustrates the maximum amount that can be contributed to each kind of Isa within a single tax year, up to a combined maximum of £20,000.
If you are a UK resident and are at least 16 years old, you are eligible to create a cash Isa. On the other hand, you have to be at least 18 years old to open a stocks and shares Isa.
Isas can also be opened by individuals who are married to those serving overseas for the Crown as well as by Crown employees themselves.
Will withdrawing money from my Isa reduce the amount of money I have available?
Some Isa accounts are flexible, which means that you can withdraw money from an Isa account and replace it without the replacement counting further towards your Isa quota. The rules governing Isa accounts are not only based on how much money you put into the account each year.
The only requirement is that you contribute additional money to your Isa during the same tax year that you took money out of it.
If you bring it into the following year, it will count toward the new yearly limit that you have been given. This also applies to cash that is stored within an Innovative Finance Isa or a stocks and shares Isa; however, it does not apply to Junior Isas or lifetime Isas.
However, depending on when the money in the Isa was saved, there are a few additional restrictions that must be adhered to.
Only money from the account’s past tax years is in it.
You have the option to take money out of this account; but, if you put that money back into the account before the end of the current tax year and replace the exact same amount, it won’t count against your Isa allowance for the current tax year.
Consider the following scenario: two years ago, you contributed £20,000 to a cash Isa, and today, you withdraw $3,000. You have the ability to pay in a total of £23,000, which means that you can replace the £3,000 (but not more than that) and use up your entire allocation of £20,000 from the current tax year.
Only funds from the current tax year are available in the ira.
You have the option to take money out of this account; however, if you put that money back in before the end of the current tax year, the withdrawal won’t count toward the Isa allowance for the current tax year.
For illustration purposes, let’s say that during the current tax year you contributed £15,000 to a cash Isa account. You withdraw £5,000.
After that, you have the option of depositing £10,000 into the account. This includes the £5,000 that you took out of the account earlier in addition to an additional £5,000 that would bring the total amount of money put to £20,000.
The Individual Retirement Account holds cash from both prior tax years and the current tax year.
In this scenario, any withdrawals you make will first be deducted from the money you’ve contributed to the account during the current tax year. In the event that you take out more money than you have contributed to your retirement account during the current tax year, the difference will be deducted from the funds that you have contributed during earlier tax years.
When it comes time to pay the money back in – which, to reiterate, you must do before the end of the current tax year – this works the other way around; the money you deposit is first used to refill cash Isas from prior years, and then your cash Isa from the current tax year comes next in line.
Let’s imagine that you deposited a total of £20,000 during the prior tax year, but you’ve only paid in £5,000 thus far during the current tax year. After that, you take a withdrawal of fifteen thousand pounds.
The first £5,000 is deducted from the money you’ve placed during the current tax year, and the remaining £10,000 is deducted from the cash you had put during the previous tax year, which totaled £20,000.
When it comes to paying back the money, the sum of £10,000 from the year before is “topped up” first, followed by the sum of £5,000 from the current tax year. After that, you would still have a total of £15,000 of the Isa allocation for the current year to put to use.
Keep in mind that not all Isas offer flexibility.
Because this flexibility is not required and is not accessible on all Isas, you should always verify with your provider before withdrawing any money. Since this flexibility is not mandatory and is not available on all Isas.
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 paying the cash back into the account would count further toward your Isa limit. If your Isa isn’t flexible, it also means that any cash you withdraw loses its tax-free status as soon as it leaves the Isa “wrapper” (account).
It is important to bear in mind that fixed-rate cash Isas require you to keep your money in the account for a particular period of time. Because of this, you may be subject to a penalty if you access the money before the specified time period has passed.
How many individual retirement accounts (IRAs) am I eligible to hold?
There is no precise cap on the number of Isas that a person can hold in total; but, during each tax year, contributions can only be made to a single form of Isa (we explain this more fully below).
However, there are restrictions placed on certain Isa account kinds.
You are only allowed to have one Help to Buy Isa at any given moment, but you are free to have several cash Isas, stocks and shares Isas, innovative financing Isas, and lifetime Isas. However, you can only contribute to one Isa each year.
How many Individual Retirement Accounts (IRAs) can I contribute to in a single year?
In addition to the fact that you are only permitted to deposit a particular sum of money into your Isa during the course of each tax year, there is also the restriction that you can only deposit money into one of each type of Isa during the course of a single tax year.
This indicates that you are only permitted to make fresh deposits into one cash Isa (if you have a Help to Buy Isa, this counts as being your cash Isa choice), one stocks and shares Isa, one innovative financing Isa, and one lifetime Isa.
If you have a Help to Buy Isa, putting money into it will contribute against depleting the cash Isa option you have available for the year.
This rule does not apply to lifetime Isas; it does not matter whether you have a cash or stocks and shares lifetime Isa account; lifetime Isas are free from this rule.
If you have previously put money into an investment account, for example a cash Isa, but later discover a better rate on the market, you might be able to take advantage of it by moving your Isa funds to a different provider and taking benefit of the higher rate.
If you are moving money saved in past tax years, you have the option of moving all of it or part of it to a new Isa, and doing so will not have any impact on the Isa allowance you have for the current tax year.
On the other hand, if you want to shift money that you’ve paid in the current tax year, you have to move the entire amount.
Please be aware that not all Isas permit transfers; therefore, you should confirm this before applying for one. Find out more about how to move your money by reading our comprehensive guide. Isa
What are the maximum contributions that can be made to a Help to Buy Isa or a lifetime Isa?
Help to Buy Isas
The Help to Buy Isa programme will no longer accept new savers after November 30, 2019, however those who already have a Help to Buy Isa can keep contributing to their accounts.
If you are putting money away in an Isa to put down on a house, you are eligible for a bonus of £50 for every £200 you put away. The maximum bonus that can be received from the government is £3,000, and it applies to savings of up to £12,000.
You can begin contributing to your Help to Buy Isa with an initial deposit of £1,000 to get things rolling, and then continue to contribute £200 on a monthly basis after that.
This indicates that you will be able to save up to £3,400 in the first year that you start a Help to Buy Isa, and then £2,400 in each subsequent year after that.
Only adults between the ages of 18 and 39 are eligible for the lifetime Isa, which is intended to assist these individuals in purchasing their first house or saving for retirement.
You are allowed to contribute up to £4,000 in each tax year, and the government will contribute an additional £1 incentive for every £4 that you save, for a total bonus of up to £1,000 each year if you meet the requirements. You can only add to your funds until you turn 50 years old.
What is the annual contribution limit for the Junior ISA?
The maximum amount that can be contributed to a Junior Isa each year remains unchanged at £9,000 beginning with the tax year 2021-222 and continuing through the tax year 2022-223.
Due to the fact that the Junior Isa is the property of the kid, parents and guardians are not penalised for contributing to it up to the maximum amount allowed because the money comes from their own Isa allowance.
The Junior Isa account will be converted into an adult Isa when the child reaches the age of 18, at which point the individual will be able to choose what they want to do with the money in the account.
Junior Individual Savings Accounts are not qualified to take advantage of the new laws regarding flexible withdrawals.
When I pass away, what will happen to the money in my Isa account?
Regardless of whether they actually inherit the money that is in your Isas, if you are married or in a civil partnership, your spouse is eligible to inherit the Isa allowance that you have built up through saving into these tax-free accounts. This is true even if they do not inherit the money that is in your Isas.
They will be entitled to an additional Isa allowance that is equal to the value of your Isa savings Isa at the time of your death. This entitlement is known as a “additional permitted subscription” allowance, or an APS allowance.
Due to the high level of complexity of the rules, we strongly recommend reading through our information on Isa inheritance.
What happens if I go over my yearly Isa contribution limit?
You run the risk of making an overpayment during a single tax year if you have more than one Isa with a different provider. This is because it is possible to have many Isas.
HMRC is going to check the records of individuals at the end of the tax year, and if they find that you have paid in an excessive amount of money, they will let you know.
It is possible that you will be given a warning letter if this is the first time that this has occurred, but it is in your best interest to check yourself.
If HMRC makes the decision to take action, your Isa provider may be given the instruction to remove any over-subscriptions and to tax any income or growth associated with the money in question.
You can contact the HMRC’s Isa helpline on 0300 200 3312 if you need assistance. HMRC warns against attempting to fix the mistake by withdrawing money from the account.