In a major shake-up of tax-free accounts, savers and investors can now open and pay into as many Isas as they like – bar the Lifetime Isa – capped at £20,000 for the 2024/25 financial year.
Previously, savers could only open and pay into one cash Isa and one stocks and shares Isa per year.
This has changed under rules announced by former Chancellor Jeremy Hunt. And it’s lucky it happened, as Hunt had made Isas more valuable by slashing capital gains and dividend tax-free allowances, while his successor Rachel Reeves hiked CGT rates.
The underlying DNA of cash, innovative finance and stocks and shares Isas is the same: You have a maximum £20,000 allowance you can put into any per year.
Head to head: New Isa rules coming into force on 6 April mean savers and investors can pay into multiple cash and stocks and shares Isas so long as they keep to the £20,000 limit
Money in an Isa is protected from tax, and you have the flexibility to transfer from one to another (if the provider allows it) or withdraw your cash at any time. However, each has their own quirks.
The Lifetime Isa is a separate type of deal meant to help buy a house or save for retirement, and also comes in cash or stocks and shares options.
We look at the benefits of each type of Isa as well as the Isa rule changes, which will allow savers to hold more than one of each, in more depth.
What changed on 6 April?
From Saturday 6 April 2024, savers are now able to pay into as many stocks and shares, cash or innovative finance Isas as they like, with as many different providers as they choose. This change excludes the Lifetime Isa.
Innovative finance Isas are designed for peer-to-peer lending, which involves an investor using a platform to make loans to consumers or businesses in return for an interest rate return – typically two to three times that on cash.
Existing rules meant savers were only able to pay into one cash Isa, one stocks and shares Isa and one innovative finance Isa with their current year’s allowance.
Will savers be able to open up unlimited Isas?
Technically the answer is yes.
Savers and investors will be able to open and subscribe to as many stocks and shares Isas, cash Isas or innovative finance Isas as they wish, across as many providers as they wish.
But their total subscriptions across all providers and accounts must remain within the £20,000 Isa subscription limit per tax year.
The onus will still be on savers to stay within the Isa limit of £20,000 per tax year and make sure they don’t exceed their limit.
Another thing to watch out for if you are transferring an Isa is whether the new provider accepts transfers in.
> Essential guide to Isas: What you need to know
Who will the new Isa rules benefit?
Experts are hopeful the changes will trigger more competition among Isa providers to offer better rates to savers.
The changes should make it easier for savers to choose the best Isas for them — for example, you could hold both an easy-access and a fixed-rate cash Isa — and snap up attractive deals.
Andrew Prosser, of investment platform InvestEngine, said: ‘The restrictions on opening and funding just one type of Isa per year has meant that many people putting money into cash Isas get stuck with poor rates.
‘Similarly, those investing in a stocks and shares Isa can be hit with high and uncompetitive fees, with no way of avoiding these until the end of the tax year or by sacrificing their allowance.
‘Allowing multiple Isa subscriptions will bring more flexibility to the Isa regime and foster much needed competition in the market.
‘Individuals with stocks and shares accounts will now be able to move their funds to new providers that offer lower or zero fees on accounts, all while protecting the tax-free status of their funds and ensuring that they can make their money go further.’
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: ‘This change will be useful for investors who want to use more than one provider or have different Isas for different financial goals.’
Are providers ready for change?
This change to Isas is not mandatory and Isa providers can choose to limit subscriptions to only one Isa held with them in any tax year.
This means the impact of providers not delivering this change has little change from a regulatory perspective.
What are the benefits of a cash Isa?
If know you need a specific sum of money in the near future, cash is often the most sensible home for your money.
The interest from cash Isas is guaranteed and if something was to go wrong with a provider, the first £85,000 with each firm would be protected by the Financial Services Compensation Scheme (FSCS).
Cash Isa rates have come down from their peak, but savers can still find some of the highest rates we’ve seen over the past decade.
What are the benefits of a stocks and shares Isa?
Although the value will fluctuate in the short term, over the longer-term stocks and shares Isas tend to outperform their cash alternatives.
For the sake of your long-term wealth, it pays to hold investments in a stocks and shares Isa and not lose a chunk of profits and dividends to tax – and then see the potential effect of that compound over the years.
This has become even more important, as the capital gains tax-free allowance has been slashed from £12,300 to just £3,000. The dividend allowance has been cut from £2,000 to £500.
> Find out how to pick the best stocks and shares Isa
Ultimately, there is no reason why savers shouldn’t reap the shorter-term benefits of a cash Isa and the longer-term returns of a stocks and shares Isa, if they want to.
What about flexible Isas?
A flexible Isa lets you withdraw your money and, crucially, put it back again without affecting your annual allowance – provided you pay it back in the same tax year.
They are most beneficial for those with large cash pots who are able to max out their £20,000 Isa allowance each year.
If you put £20,000 in a cash Isa and then take £5,000 out, in a non-flexible Isa you lose that £5,000 from your allowance.
With a flexible Isa you can put money you withdraw back in and not lose your allowance, so long as you put it back in within the same tax year.
A lot of banks and building societies don’t offer flexible Isas – and some that do will have limits on the number of withdrawals you can make per year before your rate plummets.
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