This time of year is always a bit of a panic, as every year the same questions come up – what happens to your unused ISA allowance each year? The simple answer is that it is swept away and you can’t use it towards your allowance for the new year, however there are a few points to note before we look at this in more detail.
The Core Rule: Reset, Not Rollover
For each tax year, the annual ISA allowance is set at £20,000. When the tax year ends on 5 April, the allowance for that year is lost forever. Although you can carry forward any unused allowance for the previous tax year, plus any temporarily restricted allowance, into the new tax year, the current year’s allowance cannot be carried forward. For example, if you have only used £6,000 of the current year’s ISA allowance of £20,000 by 5 April, the remaining £14,000 will be lost and will not form part of the current year’s allowance for the new tax year.
Flexible ISAs Buy You Some Room
A flexible ISA allows you to withdraw money from your account and then put it back within the same tax year, and this will not use up any of your remaining ISA allowance for that year. For example, if you put £10,000 into a flexible ISA account, then withdrew £3,000 to deal with an unexpected bill, and then put that £3,000 back before the end of the tax year, you will have used only £10,000 of your allowance for the year. However, once the tax year has ended, you will no longer be able to use the flexible withdrawal feature on that account, and any repayment of withdrawals after that date will count towards your new allowance for the current tax year. Many flexible ISAs are offered by banks, but not all bank ISAs are flexible. It is therefore very important that you check with your provider before relying on the flexible feature of an account.
Moving Provider? Transfer, Don’t Withdraw
Most people withdraw money from their old accounts hoping to reinvest the cash in higher paying accounts. However, withdrawals from old accounts actually break the tax free status of those savings and then when you deposit the cash into a new account it counts towards your annual allowance for that year as well. So you could end up using up your entire annual allowance for that year. The best way to move cash between accounts is to transfer the money from one account to another – this is known as a transfer and does not count as a deposit for new money. Transfer time can take up to 7-14 days so make sure you start the process early enough to avoid any last minute hiccups.
Lifetime ISAs Sit Inside The Same Limit
A Lifetime ISA (LISA) forms part of your overall ISA allowance of up to £20,000 per year. The amount you can add to a LISA each year is up to £4,000. So, for example, if you added the maximum £4,000 to a LISA in a year, you would have £16,000 to add to cash ISA’s, stocks and shares ISA’s and Innovative Finance ISA’s in that same year. For more information on the way different types of savings can be held within an ISA please see the Financial Conduct Authority’s (FCA) regulated guidance on ISA savings.
Checking How Much You’ve Already Used
If you have more than one ISA, you need to work out how much you have already deposited for the current tax year for all of them. This can include a cash ISA, a stocks and shares ISA, an Innovative Finance ISA and a Lifetime ISA. The £20,000 limit applies across all of your ISAs for the current tax year, not to each individual account. According to Which? guidance on making the most of your annual ISA allowance, keeping a running note of how much you have deposited in all of your ISAs throughout the tax year will be easier than trying to work out how much you have deposited in the last few months of the tax year. It will also mean that you can make the most of your ISA allowance throughout the year.
Money Already In Doesn’t Lose Its Shelter
Savings in ISA’s are not affected by the end of the tax year. The tax free status of savings already in ISA’s will continue to apply after 5 April. Only the unused allowance for the current tax year will have disappeared. In the meantime though that cash could have been working for you instead of steadily losing value. It is therefore important to use your ISA allowance in good time so you can make the most of your money. If you are looking for isa allowance use it or lose it, see https://inflationsaving.co.uk/general/the-pound-in-your-pocket-is-always-melting/.
Watch The Clock On Last-Minute Top-Ups
Money transferred by bank transfer between accounts held with different providers will typically take until the next working day to clear. Cheques will take several working days to clear and it’s best to avoid depositing by cheque on 5 April as this is a risk to the funds being processed in time. Most providers will set out a specific date and time for acceptance of deposits for the current tax year and this should be checked with the provider.
One Line On What’s Coming
This year’s full £20,000 cash ISA allowance won’t last forever. The allowance is due to be reduced to £12,000 from April 2027 for new cash ISA investments. So if you intend to use the current fuller allowance, you had better get a move on and start saving as soon as possible in this tax year and next.
Common Questions
No – it is allowed each year and resets to zero on 6 April each year. Any unused allowance in the prior year’s tax year is allowed to lapse.
Yes. This would be classed as a repayment within the same tax year and therefore would not use up any of your allowance for the current tax year.
Will withdrawing from and then re-depositing in a flexible ISA count towards your annual allowance? No, as long as the ISA is flexible and you repay within the same tax year.
How much does payment into a Lifetime ISA count towards the overall £20,000 allowance? Up to £4,000 of any payment into a Lifetime ISA in the tax year will count towards the overall £20,000 allowance for that year.
How much of your allowance have you used so far in the tax year? You should add up all of the money you have deposited in all of your ISA accounts since 6 April in the current tax year. This will include all of your cash ISA’s, stocks and shares ISA’s and your innovative finance ISA’s as well as your Lifetime ISA’s. As outlined in the above article, the allowance for all of these accounts is part of the overall £20,000 allowance. Independent guidance on making the most of your annual ISA allowance from Which? suggests that you should keep a running total of all of your ISA deposits throughout the tax year and this can be easily done with a note and pen to keep a running total as the tax year unfolds.
