Isa rules have undergone a big change which could affect the way you save and invest in these tax- efficient products. Below we explain how Isas work now and what’s going to be different about them in future.
Savers put £11.7 billion into Cash Isas in April 2024 – the highest inflow since the products were launched in 1999 – according to official data from the Bank of England.
In total, nearly £750 billion is held in Isas in the UK, of which approximately £456 billion is invested in stocks and shares Isas, and £285 billion in cash Isas. A further £9 billion is held in Junior Isas for children.
New rules that came into effect this April have changed how Isas operate and what you can do with them. And now there is the new British Isa, giving a £5,000 boost to your annual allowance.
In this article, we cover:
Read more: Best cash Isas
Previously you could only open one of each type of Isa every tax year. For example, you could have one cash Isa and one stocks and shares Isa, but not two cash Isas or two stocks and shares Isas.
So, suppose you invested £10,000 into an easy access cash Isa last tax year, you wouldn’t be able to save your remaining balance in a fixed rate cash Isa. Instead, you’d need to use it in a stocks and shares Isa or a Lifetime Isa, if you qualify.
This rule has been abolished this tax year and you can now invest in as many Isas as you see fit.
Secondly, you can now make partial transfers if you’re moving funds from one provider to another.
In previous years there were restrictions on what you could transfer. For instance, if you wanted to move money from your cash Isa to a stocks and shares alternative, and you had contributed towards that cash Isa in that tax year, your entire contribution for that year needed to be transferred across.
This rule has since been removed and you can now decide the sum you wish to transfer. However, provider rules may yet apply, so always check the terms and conditions before opening an account.
You probably haven’t heard of these pretty, quaint, under-the-radar UK villages, which is part of their special charm for home buyers and residents. Read more
An Isa is a tax efficient home for your investments or savings. Any dividends, profits and interest you make on the money inside this account is exempt from capital gains and income tax.
This allows you to maximise the money you earn from your savings or investments. But there’s a limit on the amount you can deposit into your Isas each tax year, which runs from April 6 to April 5, rather than January to December.
Our video also explains:
There are four of different types of Isa you can open as a UK adult, with the British Isa planned to come in next year.
Which ones are right for you depends on your financial goals, be they looking to save for your kids’ future, buying a house, or saving for retirement. The different types of Isas are:
While an Isa can be a tax efficient home for your money, there are some rules you’ll need to consider before opening your account.
This tax year, you can put up to £20,000 across your chosen Isas. This limit is known as your Isa allowance, and it must be used before the end of the tax year. If you have some of your allowance remaining, you won’t be able to carry it forward into the next year.
However, there are exceptions for certain Isa types:
The allowances are pooled across the different Isa types. So if you contribute the full £4,000 limit in a Lifetime Isa, you’ll be left with with £16,000 to invest in other Isa types.
You can move any money you have in an old account across to the new provider as long as it accepts transfers in.
There are no limits on the amount you can transfer. So the money you’re switching could exceed your £20,000 allowance. A transfer also won’t use any of your allowance.
It could make sense to transfer different pots into one place to simplify your finances, pay less in fees, or get a better interest rate.
In the past, if you want to transfer to a new Isa you had to transfer all of the money you had already deposited in that tax year. So, consider this example:
Sam had an Isa balance of £100,000 which has built up over several years. Over this tax year she’s deposited £15,000 into her fund but wanted to switch providers. Under previous legislation she had to transfer her entire £15,000 balance to her new provider.
Now, since the start of the new tax year, it is possible to make partial transfers.
If your cash Isa provider is an authorised and regulated by the Financial Conduct Authority (FCA) then it will enjoy the same FSCS protection as traditional savings accounts.
To see if your provider is recognised by the FCA, make sure to search its register.
The Isa deadline for 2024/25 tax year is at midnight on Saturday, April 5, 2025.
The good news is that you do not have to declare any interest or capital gains on your savings or investments via a self assessment tax return. Remember any gains in your Isa are tax-free.
However, keep in mind this could change in the future.
You will still enjoy the tax-free benefits of saving or investing in these accounts when you withdraw any profits, interest or dividend income.
If you hold shares in companies outside an Isa, you have a tax-free dividend allowance of £500; earn more than this and take the cash and you would pay tax on the payouts. This won’t happen if they are held within an Isa.
In April 2022, tax on dividend income increased by 1.25%. This means that if your investments are held outside an Isa, you would pay this tax at a rate of:
You can pass your Isa on to your spouse or civil partner should they outlive you without incurring inheritance tax.
However, at the time of death you must be:
If you fulfil these criteria then your balance will be transferred free of inheritance tax to your spouse or civil partner. This is considered a one-off additional allowance and does not affect the surviving partner’s Isa allowance.
If you leave your Isa to someone other than a spouse or civil partner it can be liable for inheritance tax.
We go into more detail on the inheritance tax rules including how to reduce your inheritance tax bill.
ISAs work best when you pick the right one for your savings goal. Take this short survey to find out which ISA might be right for you.
There are some circumstances when a cash Isa might be best:
Here are the best cash Isas according to our ratings.
There are some circumstances when a stocks and shares Isa might appeal:
If you have children, you might want to open a Junior Isa.
If you’re saving for your first home or want to put money away for later life, Lifetime Isas offer a savings boost. You get 25% added to any money you pay in, up to £1,000 extra a year.
But there are a couple of major conditions.
Innovative Finance Isas work like other Isas, but let you take advantage of a few things that other Isas don’t, primarily peer-to-peer lending and certain property funds.
The key things to bear in mind with Innovative Finance Isas are:
A Help to Buy Isa was the government’s first attempt at helping first-time buyers save. However, this product has now been replaced by the Lifetime Isa (Lisa).
Both types of Isa offer a 25% bonus on savings.
While you can no longer open a Help to Buy Isa, existing holders can keep saving in until November 2029. Any bonus will need to be claimed by November 2030.
Savers can contribute £200 a month and up to £12,000 in order to claim a maximum bonus of £3,000 to buy their first home.
Although it’s possible to have both a Lifetime Isa and a Help to Buy Isa, you can only use the bonus from one of them to buy a home.
The exception to the rule is if you’re buying with another first-time buyer, when one of you can use a Lifetime Isa and the other can use a Help to Buy Isa to purchase your home together. But bear in mind that the products have different restrictions on the value of the property you can purchase:
Check out our pick of the top Lifetime Isas.
In his spring budget, the chancellor announced a reform to the current structure by introducing the British Isa.
It differs from the other Isas on offer because its £5,000 allowance is separate from your annual Isa limit. This means, if used correctly, your total Isa allowance could be boosted to £25,000 a year.
“This will ensure British savers can benefit from the growth of the most promising UK businesses as well as supporting those businesses with the capital to expand,” the chancellor said in his budget.
It’s a reform which was welcomed by UK Finance, the industry trade body, which said it should increase investment in the country.
“We welcome his focus on promoting ownership of UK stocks and helping more people save for the long term,” said David Postings, chief executive of UK Finance.
The government has been running a consultation for the British Isa to set out its objectives and implementation, which will now be on hold until after the election.
While cash Isas benefit from FSCS protection, the value of your stocks & shares Isa or Innovative Finance Isa can go up or down.
If you have a Junior Isa or Lifetime Isa invested in stocks and shares, the value of your funds can also go up and down.
Investing in the financial markets always comes with a degree of risk – you could lose some or all of your money.
However, history shows us that if you diversify your investments and leave your money invested for at least five years, it is more likely to grow.
Some of the products promoted are from our affiliate partners from whom we receive compensation. While we aim to feature some of the best products available, we cannot review every product on the market.
Although the information provided is believed to be accurate at the date of publication, you should always check with the product provider to ensure that information provided is the most up to date.
Sponsored
The rate is valid on its Lifetime Isa and stocks & shares Isa. We explain below how it compares to other options across the market. Dodl will offer a market-leading 5.09% interest on uninvested cash across a its investment Isa and investment Lifetime Isa. The advertised rate is displayed as an Annual Equivalent Rate (AER) […]
Sponsored
Raisin UK’s offer can be a great way to elevate your savings and reach your goals. We explain how you can claim the offer. New customers have until 30 September 2024 to take advantage of Raisin UK’s latest incentive and enjoy a £100 cash boost. Before the deadline, they’ll need to join the savings platform […]
A stocks and shares Isa offers the opportunity to profit from the stock market without having to hand over any of your gains to the tax man. Opening one via an investment platform will enable you to hold individual shares, actively managed funds, passive funds, ETFs and investment trusts. Selecting your own investments requires plenty […]
Times Money Mentor shows you how in September with its free four-week newsletter course. Sign up now for a richer retirement. When you subscribe, you will also receive our weekly newsletter.
By entering your details, you agree these will be used according to our privacy policy. You can unsubscribe, although if you do you will stop receiving both newsletters.
Look out for the first email on 3 September. You'll also receive our regular weekly round-up of money matters.
Times Money Mentor shows you how in September with its free four-week newsletter course. Sign up now for a richer retirement. When you subscribe, you will also receive our weekly newsletter.
By entering your details, you agree these will be used according to our privacy policy. You can unsubscribe, although if you do you will stop receiving both newsletters.
Look out for the first email on 3 September. You'll also receive our regular weekly round-up of money matters.
Times Money Mentor is a trading name of News Financial Services Limited, which is an appointed representative of Richdale Brokers & Financial Services Ltd which are authorised and regulated by the Financial Conduct Authority (FCA) (FRN: 992057). In this capacity we are permitted to act as a credit-broker, not a lender. We have taken reasonable steps to ensure that any information provided by Times Money Mentor is accurate at the time of publishing. We do not provide any personal advice on any matter. Should you wish to raise any issue or concern, please contact us via care@timesmoneymentor.co.uk
Times Money Mentor has been created in conjunction by The Times and The Sunday Times with the aim of empowering our readers to make better financial decisions for themselves. We do this by giving you tools and information you need to understand the options available. We do not make, nor do we seek to make, any personal recommendations on any matter. Where we give providers or products a customer experience rating or a product rating, these are compiled against an objective criteria, using information which has been collected by our partners Defaqto and Savings Champion. In some cases, we may provide links where you may, if you choose, purchase a product from a regulated provider with whom we have a commercial relationship. If you do purchase a product using a link, we will receive a payment. This will help us to support the content of this website and to continue to invest in our award-winning journalism. News Financial Services Limited (Company Number 05891402) registered office 1 London Bridge Street. London SEl 9GF.
