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Your ISA mix: how many can you open and hold?

Written by: Paloma Kubiak
You may be familiar with the £20,000 annual ISA allowance, but there are now a range of ISA options available. Our guide explains the rules and interaction between all the different types.

There are currently six different types of ISA available, falling broadly within the cash or investment arena.

The most suitable will vary, depending on whether you’re happy to take on more risk (investing in the stock market), whether you’re a first-time buyer, you’re saving for children or you’re saving for your retirement.

Knowing how many ISAs and which types you can hold or subscribe to in any given tax year can be a challenge.

Our guide explains what you can and can’t do with ISAs and how they interact with each other, so you don’t fall foul of the rules:

Annual ISA allowance

The current annual subscription amount is £20,000 per tax year. You can split the £20,000 allowance between the following ISA products:

  • Cash ISA – from banks, building societies and some NS&I products
  • Stocks & Shares ISA – invest in company shares, unit trusts and investment trusts, corporate and government bonds
  • Innovative Finance ISA (IFISA) – includes peer-to-peer loans or crowdfunding debentures
  • Lifetime ISA – a property-come-retirement savings hybrid.

However, the maximum amount you can allocate to a Lifetime ISA each tax year is £4,000, meaning you have up to £16,000 to split between the other three types if you wish, or any combination of those.

As an example, you can split your money 50/50 between a cash ISA and a stocks & shares ISA, or you can deposit £10,000 in cash, £5,000 in stocks and £5,000 in an IFISA. Any combination is ok as long as you don’t exceed the £20,000 annual ISA allowance.

First-time buyer ISA schemes

It gets more complicated when you throw the Help to Buy ISA into the mix. The Help to Buy ISA is a type of cash ISA so they’re essentially considered the same ISA-type product.

This means you can’t have a cash ISA and a Help to Buy ISA in the same tax year unless it’s with a provider that offers a ‘Portfolio ISA’.

As an example, if you have a cash ISA with Barclays, you won’t be able to open a Help to Buy ISA with Nationwide. But if you have a cash ISA with Nationwide, which offers the ‘Portfolio ISA’, it will also allow you to open a Help to Buy ISA.

Providers offering this cash ISA umbrella will make this clear; otherwise savers with a Help to Buy ISA (maximum subscription of £3,400 in year one) could find they’re not able to use their remaining ISA allowance (£16,600) and it will be lost forever.

If you have a cash ISA and you wish to open a Help to Buy ISA, this means the transfer will be restricted by the initial deposit (up to £1,200) in the first month, followed by monthly instalments of £200.

While the Lifetime ISA is a similar scheme to the Help to Buy ISA (both offer government bonuses of 25% to help first-time buyers get on the property ladder, though the Lifetime ISA can also be used to save for retirement), you can have one of each. Got it? Good.

But it gets more complicated. The bonus can only be used from one government scheme if you’re looking to buy your first home, but if you use the Help to Buy ISA for a home and the Lifetime ISA for retirement, you can gain bonuses from both schemes.

If you opened a Help to Buy ISA pre-6 April 2017, special rules apply if you wish to transfer the amount to the newer Lifetime ISA. Danny Cox of Hargreaves Lansdown explains that until 5 April 2018, you can transfer your Help to Buy ISA, including interest (valued at 5 April 2017) to a Lifetime ISA without the amount contributing to the £4,000 annual Lifetime ISA limit. This means you’ll be able to invest up to £4,000 in a LISA and up to £16,000 into a cash, stocks and shares or Innovative Finance ISA. Any funds built up on or after 6 April 2017 will count towards the Lifetime ISA limit for the year.

It’s best to mentally split your Help to Buy ISA into two parts, says Sarah Coles of Hargreaves Lansdown. Part one is the amount built up between 1 December 2015 and 5 April 2017. Part two is the amount built up between 6 April 2017 and today.

As an example, if you opened a Help to Buy ISA at launch on 1 December 2015 and deposited the maximum amount each month until April 2017, you would have accumulated £4,400. The Treasury explains that the £4,400 has been built up before 6 April 2017 so it will not count towards the annual Lifetime ISA limit and so a saver will be able to pay in up to £4,000 before 6 April 2018. They will receive a 25% government bonus on the full value of the transferred funds. It’s not that someone has a higher limit, just that they can make a transfer that doesn’t affect the Lifetime ISA limit.

An ISA for children

Lastly, there’s also an ISA option for children too. The Junior ISA includes a cash version and a stocks & shares version. Your child can have one or both types of Junior ISA, though the annual allowance is much lower at £4,128 in the 2017/18 tax year, rising to £4,260 in the 2018/19 tax year.

You can mix the subscription between cash and stocks and shares but unlike the adult ISA where you can subscribe with a different provider each year and leave the previous subscription where it is, you can only have one cash Junior ISA and one stocks & shares Junior ISA. So if you want to switch provider, you have to transfer the previous subscriptions too.

At the age of 16, a child can have a Junior ISA and an adult cash ISA.

Anna Bowes, director of Savings Champion, says there’s been a lot of tinkering with ISAs which has complicated an otherwise simple tax-free product.

“ISAs are the first place that savers should consider when they are planning their finances, after all when the government is giving you a tax break, you should grasp it with both hands. However, over the years they have become increasingly complex, so many struggle to understand the different types of ISA available, let alone how much they can put into which.”

She said that one of the biggest impacts on the cash ISA market has been the introduction of the Personal Savings Allowance (PSA), which means that for many savers, paying tax on their savings is now a thing of the past – which after all is one of the key benefits of the cash ISA.

The gap between the best rates on offer versus standard accounts has also impacted the popularity of ISAs, though she says there are still a number of reasons to use a cash ISA and to not dismiss them out of hand.

“While the PSA means basic rate taxpayers can earn up to £1,000 in interest before paying tax and £500 for higher rate taxpayers, cash ISAs do not count towards this, so they can be held in addition. This could prove extremely valuable if you are likely to go above the threshold or if indeed you are an additional rate taxpayer, who get no PSA at all.

“Another reason to still consider a cash ISA is that if you don’t use your ISA allowance, it will be gone forever, reducing the amount you can save tax free in the future. If the government decided in the future to scrap the PSA, then the amount you hold in ISAs will remain tax free – it’s arguable that there is more likelihood for a change in the PSA than retrospective action taken on cash ISAs already held,” she added.

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