ISA allowances explained: how much money can you save?

so I get a lot of questions here on the channel about Isis and that's why I'm doing this series of videos explain how they work the first one which you can watch up here a link up here and Below explains the different types of ice exactly why they are and how they work this video though is going to look at allowances how much you can pay into an Isa in a year and beyond that and what happens if maybe you go over that allowance and so on right so this will be the next level to help you understand how to really maximize your ices so let's kick off with what is the iso allowance and it's pretty clear right this is the amount of money that you can put into an Isa and this allowance lasts for 12 months it's for one year but this is about how much you can pay in in that year okay so it starts uh with a tax year on April the 6th every single year and when that begins you have a brand new allowance doesn't matter who you are what you earn as long as you're a UK resident over the age of 18 well some cash Isis are available if you're 16 years old but broadly speaking if you're over the age of 18 you can pay up to 20 000 pounds into your Isis every year for the next 12 months that's how long you've got to pay in this 20 000 pounds up to obviously for most of us we aren't going to be doing that right but that's how much the most you can put into it it's a pretty sizable amount twenty thousand pounds that's been around that level since around 2017 so it's been a while now at that level actually started when Isis first were introduced in 1999 it was around at 7 000 pounds when they launched so a lot lot lower but now it's grown gradually over time and this is what it's going to be certainly this year 2023 2024 and it's currently set to be the same next year 2024 2025 and potentially after that as well now obviously these things can change so if you are watching this video in a later year then do make sure you just double check to see if I've done an updated version of this video or just have a quick Google and check what the iso allowance is for that year but 20 000 pounds it's the most you can pay into an Isa in a financial year again starts on April the 6th now that Isa allowance counts towards the four main types of iso which I say you can read hear more about in that other video that I mentioned at the top these are the cash Isa the stocks and shares Isa the Innovative Finance Isa and the lifetime Isa this 20 000 pounds allowance though is combined there is not a separate twenty thousand pounds for cash twenty thousand pounds for stocks and shares twenty thousand pounds of energy Finance twenty thousand pounds for Life they're Miser it is twenty thousand pounds combined in a year so if you do want to have more than one type of Isa you have to ensure that those different contributions do not go over that twenty thousand pound limit and in fact within that there is a sub limit on the lifetime ISO that has its own four thousand pounds cap every single year so if you are able to maximize the lifetime ISO and choose to every single year upset four grand then that means the remaining allowance for those other ices is sixteen thousand pounds you cannot put in uh four into lifetime Isis and twenty into the others no it's 20 overall and that's kind of cut out of it if you imagine like a little square that's the bottom now how you divide either the full 20K amongst the other types or the remaining money if you've already had a lifetime ice a bit that is up to you you know you can have 10K in cash 10K in stocks and shares 15K in imitative Finance Isa five in uh cash I so however you want to do it right but you've got to make sure you stick within that 20K now what's also really important this allowance which is again it's really resets every single year and it is collective but you can own although you can pay into one of each different type within that allowance you are not able to pay into more than one of the same type of Isa within that allowance okay with that when that year resets so does uh where you're putting that money now you might want to put that money into an existing iset that is fine you can do that or you might want to put money into a new Isa that is fine but that twenty thousand pounds pretty much is going to be stuck with whichever of those ices you choose so if you have put money into a brand new one that is the only one you're going to be able to pay into of that type remember you can split it across the different types of Isa but if you put the money into one from a previous year again that twenty thousand pounds annual allowance will be attached to that account so whichever type advisor that first time you pay into that type of Isa in the new Financial year that is where that allowance is tied to there might be a kind of a slight workaround with this which was potentially where you can transfer the money you've paid into the ISA this year plus you'd probably have to transfer money from previous years as well into a different one and that will close down the existing Isa the new ice that you've got and your allowance will carry on but I'll deal with that kind of stuff when we talk a separate video about Isa transfers uh one quick warning that is worth sharing with you here as well about that which could impact which account your allowance is tied to is if you are making regular payments every single month it's a good way to make sure you keep saving particularly when it comes to investing as well having a direct debit or a standing order that moves your money automatically out of your account into your Isa this can be dangerous though if that automatic monthly payment comes in into in the new Financial year and you might find that it's the beginning of April and I know April the 12th or whatever it is that payments come out as usual they always come on the 12th of the month you've just put 200 quid into your investment Isa that's your investment Isa for the next 12 months and if the same thing happens next year that will repeat obviously you might want to be shopping around with investment ices for lower fees or access to different funds or with cash Isis you might want to be looking for one which pays a better rate of interest so just be really careful of that and I think if you have got regular payment set up I would serve a um a note in my calendar uh before the you know beginning of March to say cancel direct debit cancel standing order so you've got that chance when April comes around to step back and think right what do I want to do you can still pay in and reset that one up to the existing ISO if you want to but you want to make sure that you have the potential to maximize that Year's allowance at the best possible rate now instantly if you are looking for the highest paying cash ISO accounts make sure you did head over to my website Be Clever with your cash.com forward slash savings that's where myself and the team every single day we're updating all the best cash savings accounts including the best paying cash Isis easy access fixes they're all in there so that's how you're going to find out if you're going to get beat the rate that you've currently got in one of these new accounts now there is quickly one uh other allowance I want to quickly talk about before we carry on with the main item ounce and this is the junior ISO allowance because that is different to the main allowance I've just mentioned this is separate it's not linked into the 20 000 pounds allowance you have it is its own one and it is 9 000 pounds a year I'm not going to cover Junior Isis too much in this one but they're probably going to Spork in that same way in terms of the allowances but it's smaller at 9k but you don't have to worry about uh mixing that up if you've got a stocks and shares ISO for yourself and you want one for the kids they can have a separate Junior Isa on their own now this is allowance it lasts for a year but that year doesn't start when you open the account or first make your payment it is as I mentioned before tied to the financial year the financial year starts or the tax year on April the 6th every year on April the 6th you get a new allowance that full 20 000 pounds uh starts runs around to April the 5th and then it re-starts again the next year so if you put open an account I don't know on the 31st of March and put some money in and let's say you put five thousand pounds in well that allowance will then reset a few days later a week later on April the 6th and the new 20 000 pounds is the most you can put in if you don't use up some of that allowance it does not carry over it just disappears and this is why you see a lot of people in the Press particularly around that kind of March time so make sure you use up your ISO allowance make sure you maximize your ice allowance because once it's gone it's gone now that is true once it's gone it's gone but I would say I only ever really maximize the eye set if you need to put the money into there a lot of people say they don't need to be doing this because there are those separate tax-free allowances that you can get from savings the personal savings layouts and savings uh which might mean if you have a lower amount of savings it doesn't really make much difference to actually open up an item have the money in there instead maximizing the ISA that full 20 000 pounds in there is really only about people who have a lot of cash a lot of money which they wish to put away or people who are investing in which case I think investing is if you are doing that you're better off using uh an Isa for investing than a general investment account I'm going to cover that more in the other video boy speaking is there it's a limit it's not a Target and it's not for everyone but it will disappear if you don't use it now that twenty thousand pounds you say it does reset every uh single year and this is uh means that potentially you could and people always can I put 20K in year after year after year and you absolutely can you could put if you wanted 20 000 pounds in on the 5th of April and then wouldn't that be lovely the next day April the 6th because you got it you could put another 20K in on the 6th of April you can do that because your ISO allowance has reset uh for the new Financial year and as I said if you do have a lot of money it can be worth doing that maximizing uh the money you have it in Isa because rules can change and once your money is in an Isa it is tax-free well the gains you make these savings the gains the dividends they are tax-free for life as long as they stay within that uh Isa uh portfolio the iso wrapper sometimes referred to it will remain tax-free um that could change obviously in the future you never quite know that could happen but you'd imagine if they do change the rules it might be for new money going into ISO rather than existing cash in there so again if you have a lot of cash I absolutely would encourage you to try and take advantage of that full amount now when I have a question that people often ask me is well how much can I put into an Isa and obviously there is a 20 000 pound annual limit but is there a lifetime limit more you can put in and there isn't you might find individual accounts have their own limit how much you can put in there and you might be thinking that's but you're gonna put twenty thousand pounds so why would you have a limit well that's because they say the following year you might want to add more money in and the year off that more money you might want to keep using the same Isa uh again I think you should shop around but if you do want to keep using the same Isa or maybe you want to transfer money from previous years into a new artist again to keep it all in that tax-free status but having it all in one place potentially at a better rate watch out for those individual limits but potentially let's say at 18 you've got 20K and you put 20K in every year for 50 years until you're 68. I know I don't know who this person is they're very lucky obviously but they would have a million pounds in their Isa after those 50 years by putting the full 20K in year after year obviously the allowances would probably change if they even exist in 50 years time but that is a million pounds potentially right that'd be fine and that's before you have uh compound interest or any investment growth so there could be even more than that okay so really the only limits you're going to have are going to be the uh the the total amount that is limited by the actual savings provider however there is potentially another limit that I would suggest you look into here and this is separate this is the particularly for uh what for any of them really this is the financial services compensation scheme protection of 85 000 pounds per financial institution I've spoken about that in a separate video so what's that one explains a little bit more but this is if the bank was to go bust the money where your uh the place where your money is held is to go bust you'd only be protected by the government up to 85k so really you want to make sure yes you can keep adding in 20K year after year after year if you want to but actually you want to get a certain point you go I'm going to take that money out and put it into a different one and that might be why again you have different ices at different providers or different types of Isa okay not many of us are going to be doing that but again if you're doing this for a long time that could easily be you know achievable over a much longer period you know you just put a grand in uh one year you know because you're starting off but two years three years four years five years later all you're doing is joint savings uh you know you might have more and more and it's grown as well the time you actually you get uh to a stage where maybe you want to use it particularly with investment ones you know you could be having a large amounts in there so just be wary of that now something else that people often ask me about is what happens to your ISO allowance when an Isa matures so a lot of people if they put their eyes in their money in a fixed cash ISO it'll be locked away from anything from one year to seven years and uh when that Bond or whatever it is when that Isom matures the money doesn't suddenly leave the ISA World it doesn't stop being an eyesight what will happen is it will be probably converted into a very low paying easy access cash Isa but it's still a nicer it's still protected as an Isaac okay remember that allowance is just about new money you can put in every single year it is not about your overarch and how much money is in there okay so a fix is just about how long you get a rate for it's not about how long it remains in iso4 uh what you want to do obviously if it does have a fix does mature and you're selling a low paying one you're going to want to get it into a better paying one and that's obviously where transfers come into play and I said I'm not going to talk about this a huge amount in this video I will talk separately about transferring Isis uh how to do them but what I do want to cover here as well is just to kind of again a question that often comes up is if I transfer money from one ISO to a new Isa which again this is really important the word transfer is about an actual process that the two Banks do if you withdraw your money from a nicer to a normal account and pay it back in it will stop being a nicer right it's the money once it's left at nicer You've Lost That Power okay but if you transfer it across uh you are not eating up the new allowance so here's an example let's say you have got uh 30 000 pounds you've served up in Isis over the last I don't know however many years right but you managed about 30k but the rate you're getting is absolutely rubber so you want to move it to a higher paying account if you transfer it across to a different provider and do check that they allow transfers not all our supervisors will allow transfers in you transfer it across that has not impacted your annual ounce for that year of twenty thousand pounds you can still if you want to pay 20K in to a new or existing Isa if you wish where you have to be careful here is if you transfer that 30k over and then add in money to that new account if you're able to that is your Isa for that year and if that's a fix that could be an issue because you've added money to a fixed cash Isa for a year and they often then close sometimes close how uh the period the window where you can add money to it if you haven't added in uh the full amount you want to that you're then going to be stopped from doing that okay you can obviously look at stocks and shares ISO or a little image of Finance size or a cash ice if you're eligible or you're going to use it but that's an important thing to remember there about the new money that you put in uh or any time really actually not just if you transfer but certainly if you're transferring across to an account and also it doesn't have to be transferred to an existing account it can be a new one and that new one can be separate to the one that you transferred into could be separate to the new one you want for new money okay remember that so the allowance is just for new contributions not transferring existing stuff uh and the last thing to talk about here is a question that also comes up quite a lot is what happens if you do go over that ISO allowance for the year that 20 000 pounds more of that is paid in either because you just didn't realize or maybe by accident particularly if you've got like a you know different types you've got a cash Isa and a stocks and shares I say maybe you're not quite you know on par with which ones had the money where and you go over that twenty thousand pounds what do you do well the answer is do nothing wait don't just withdraw the money because that'll get confusing what you should do really here is uh ideally you contact hmrc I've heard that that's quite difficult right now uh to get through to them I do have an Isa helpline at the time of recording this that number for that was 0 300 200 3300 you could call them up and ask them to kind of help you out and work out what to do but if you don't even realize you've done it or you can't get through they will sort it out at the other end and effectively what they would likely do is maybe claim back any of the money back that you would do for that so let's say you uh you interest you earned they claim back the tax on some of that interest so yeah the amount above what you would have earned and that'll all be because the providers will be reporting this to hmrc so again a bit frustrating uh if you do this I mean you obviously could contact the provider as well get some guidance from them or what you should they should do there might be something else you can do but broadly speaking it'll come out when it comes to the kind of you know January February time uh when the tax returns start coming through so there you go that's hopefully everything you need to know about Isa allowances I will be doing and I'm a video uh shortly about transferring Isis as I mentioned if you've got questions for those do send them over to me the best place to ask them is in our Facebook group had to be clever with yourcash.com forward slash Community join us there ask your questions and I'll hopefully be able to include the answers in the next video in this series my name is Andy whip thank you so much for watching make sure you check out these videos right here for more ways to boost your savings

Channel: Be Clever With Your Cash

Views: 33,521

Keywords: stocks and shares isa, stocks and shares isa uk, stocks and shares isa explained, what is a stocks and shares isa, cash isa vs stocks and shares isa, cash isa, what is an isa, lifetime isa, stocks and shares isa for beginners uk, innovative finance isa, uk isa account, cash isa vs savings account, cash isa or stocks and shares isa, investment isa, cash isa uk, individual savings account, ISA allowance, how much can you put in an ISA

Id: lHZx5Fr7Kzw

Length: 17min 36sec (1056 seconds)

Published: Sun Oct 01 2023