If you want to utilise your tax free allowance to the fullest, consider adding variations to your savings. You can achieve this by opening more than one ISA. Different ISAs can help you achieve your goals in many different ways.
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How many ISAs can I have?
You can start as many ISAs you would like as long as you do not exceed the £20,000 ISA allowance in a tax year. You will be able to open many different types of ISAs from April 2024, however the ISA allowance will be the same.With more than one ISA you can achieve more financial goals.
How do ISAs work?
An ISA (Individual Savings Account) is a tax efficient wrapper to your savings. You can use ISA every year to keep your money safe from income tax, dividend tax, capital gains, etc.
You can allocate your allowance to one of the ISA or you can disperse it in different types. Until April 2024 you can only open one ISA and use it to contribute for tax free annual allowance.
Note that if you are not able to use the ISA allowance to full capacity within a tax year you cannot carry forward the mount to next year. You can also switch between ISA providers however the money must go directly via ISA provider.
You are not allowed to put money in any other form of savings account before you pay to new ISA. Once you invest the money that is it, you will be entitled to tax free saving and are not required to declare teh self assessment for tax return.
Different types of ISA
ISA can be of 5 types. Read below to find out what and who they are for.
Cash ISA
If you are looking for a simplistic approach for your savings then this is the right type of ISA for you. You need to have a cash savings account with an extra bonus to not pay tax on any interest you will be earning. You can pay up to £20,000 each tax year and choose between fixed or instant access.
This is suitable for people who are willing to take more risk and still simplistic as compared to cash ISA.You cna set it up online and get access to a range of investment options. The point to notice is that you will be exposed to market ups and downs so you may also end up with less money at year end.
Lifetime ISA
These were introduced in April 2027 and are suited for young people who are saving for their retirement or first home. This can be both stocks or cash shares ISA. To start one you have to be of the age range between 18 and 40 and are allowed to invest a maximum £4000 of yearly allowance each tax year.
The government will give an extra bonus of 25% and a maximum value to 1000 euros in a year unless you are using the funds to purchase a first home. You can only access the money by the age of 60. Also note that there is a 25% withdrawal charge in case you make an unauthorised withdrawal.
Innovative finance ISAs
This is a recently introduced ISA by which you can invest in peer-to-peer lending. In this you lend money directly to the borrower in return for your interest. Your £20,000 allowance can be invested in this however the loan element of ISA you will not be able to access the funds impromptu.
Another important point to notice is that in this ISA you will not be protected by the Financial Services Compensation Scheme.This means you can lose your money if the company goes bust.
From April 2024 you can invest in long-term asset funds along with open-ended property funds without any extended notice periods in the Innovative Finance ISA.
Junior ISA
Junior ISA is designed keeping in mind your kid’s savings, where you can put in £9,000 in cash or shares and stocks. The account is opened by a guardian or a parent but later anyone can add the money.
The money is held in the child’s name and will not use your £20,000 ISA allowance and can only be withdrawn after your baby turns 18 years old.
Can I transfer my money from one ISA to another?
ISA transfer depends on the provider and the accounts. Transferring the ISA is different from withdrawing from one account and depositing money into another. If you withdraw and deposit then your funds will lose the tax free status.
Final thoughts
If you have any queries regarding which ISA might be suitable for you, then its always best to consult with a financial adviser, discuss your circumstances and then they will recommend the most suitable course of action for you.
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