Originally published at: ISA guide 2023/24: Everything you need to know – InvestEngine blog
In this guide, you’ll find everything you need to know about ISAs in the 2023/24 tax year, from the yearly tax-free allowance to how to transfer from one provider to another.
Table of contents
What is an ISA?
An Individual Savings Account (ISA) is a savings account that allows people in the UK to invest tax-free.
When you put money into an ISA, it’s held within what’s called a ‘tax-wrapper’, which means that any returns made on the ISAs investments are protected from both income and capital gains tax. As such, ISAs are a very effective way that the government helps people to save.
How do I open an ISA?
Opening an ISA with InvestEngine is incredibly straightforward. All you need to do is click the green ‘Get started’ button and you’ll be taken through our simple setup process.
You’ll need to select the type of account you want and provide some details. We’ll do the rest and you can start investing almost right away.
What are the tax rules of an ISA?
The ISA is, first and foremost, a vehicle for people to protect their investments from the taxman. Up until the 2023/24 tax year, everyone in the UK had an annual capital gains allowance of £12,300. However, this was reduced to just £6,000 annually in the Autumn 2022 budget.
When you invest into an ISA, you don’t pay any tax on your returns. If you complete an annual tax return, you don’t need to declare any interest from an ISA or any income or capital gains made from it.
How much can I invest into an ISA each tax year?
The maximum you can invest into an ISA in the 2023/24 tax year is £20,000.
This allowance has remained unchanged since April 2017, when it was raised from the slightly awkward £15,240. If we go back to 2008, you could only put up to £7,000 into an ISA each tax year. There is speculation that the allowance could rise again in the near future, but the 2023/24 tax year is unchanged.
Importantly, any unused allowance does not carry over into the next tax year. This means that if you do not use all of your £20,000 allowance in the 2023/24 tax year, you won’t be able to carry forward the remainder into the 2024/25 tax year.
Can you split your allowance across different ISAs?
The simple answer is: yes.
There are some caveats to be aware of. Firstly, you can only invest into one of each type of ISA in any given tax year. This means that, if you invest into a stocks and shares ISA in the 2023/24 tax year, you won’t be able to invest into a different stocks and shares ISA until the 2024/25 tax year.
You can, however, invest into ISAs of different types in the same tax year. So, for example, you could allocate £10,000 into a stocks and shares ISA and £10,000 into a cash ISA, all within the 2023/24 tax year. Other vehicles like Junior ISAs (JISAs) and Lifetime ISAs (LISAs) can also be used.
How do ISA transfers work?
You can transfer your ISA at any point during the tax year but there are a few things to be aware of when you do.
You can transfer any type of ISA – stocks and shares ISA, cash ISA, etc. – to InvestEngine, but you need to transfer the whole thing. You cannot transfer half of your existing stocks and shares ISA, for example.
It costs nothing to transfer an ISA to InvestEngine from our side. It is worth checking whether your current provider charges a fee for transferring out. It’s worth noting that InvestEngine does not charge investors for leaving the platform.
Some reasons you might want to transfer include:
- High fees. Fees can seriously eat into returns over the long run. Make sure you’re not overpaying for your service and, remember, InvestEngine doesn’t charge any on our DIY portfolios.
- Lack of helpful tools. Some investment providers have failed to keep pace with technology. Others, like InvestEngine, offer handy tools to make investing easy and pain-free.
- Not enough variety. In 2023, there’s no reason your investments should be restricted to a small pool of potential assets. At InvestEngine, for example, we have over 550 ETFs to choose from.
- You want an affordable managed portfolio. A lot of people don’t have time to manage their investments and it shouldn’t cost an arm and a leg to have someone manage it for you. Our managed accounts charge just 0.25% annually.
For any topics we haven’t covered in this article, head to our ISA FAQs page to find the extensive list of queries we get asked on a regular basis.