How do ISAs work? 

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. But there’s a limit on the amount you can deposit into your ISAs each tax year. 

£20,000 limit 

For the 2024/25 tax year, your annual £20,000 ISA allowance will not see any change, with the £4,000 Lifetime ISA and £9,000 Junior ISA allowances also frozen. 

If you contribute the full £4,000 limit in a Lifetime ISA, you’ll be left with £16,000 to invest in the other ISA types. 

Your allowance is pooled across the different ISA types: 

• Cash ISA 
• Stocks & Shares ISA 
• Lifetime ISA (previously known as Help to Buy) 
• Innovative Finance ISA 
• Junior ISA (for your child and does not affect your own £20,000 limit) 

3 key changes 

Changes to ISA rules coming into effect from 6 April (2024) are designed to make ISAs more user-friendly: 

1) Allowing subscriptions to multiple ISAs of the same type 

You are now allowed to open and pay into multiple ISAs of the same type in the same tax year (except for the Lifetime ISA). This means you could contribute to two or more Stocks & Shares ISAs and/or two or more Cash ISAs.  

Previously, it was a case of one ISA of each type, each tax year. 

2) Allowing partial transfers of current year ISA subscriptions 

You can transfer some or all your existing ISA savings (from earlier and current tax years). Transferring won’t affect your ISA allowance although current year subscriptions will still count towards it. 

Previously, if you contributed to an ISA and then wanted to transfer the funds to a different provider during the same tax year, you’d have to transfer all that year’s contributions. 

3) Cash ISA age limit 

From 6 April 2024, there are changes to how old you need to be to open a Cash ISA – these will only be available to those aged 18 and above. 

This change will close the loophole that allows 16 and 17-year-olds to have a Junior ISA and a Cash ISA in the same tax year, in effect providing them with a £29,000 tax free ISA allowance.  

More important than ever 

When you invest outside an ISA, you can use certain tax-free allowances, but these have become less generous in the 2024/25 tax year. The tax-free gains you can make has been halved to £3,000 and the tax-free dividends you can earn has been halved to £500. 

To begin your ISA journey, please get in touch. 

Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, to determine the risks associated with the investment and its suitability.