When does the ISA year start?
An Individual Savings Account (ISA) lets you save or invest without paying tax on any interest or returns. But there are certain restrictions with an ISA on how much can you save in an ISA each year. If you’ve already met this year’s allowance, or want to know how long you have to max out, keep reading to find out when the ISA year starts.
Tax treatment depends on individual circumstances and may be subject to change in the future.
When does the ISA year start?
The ISA year starts on the 6th April, as it follows the same cycle as the tax year, which runs from the 6th April to the 5th April of the following year. So the current ISA year will end on 5th April 2025, and the new one will start the next day on the 6th April 2025.
When is the ISA deadline?
The ISA deadline is the 5th April. This is the last day that you can make the most of the current year’s ISA allowance. Once the clock strikes midnight on the 6th, any unused allowance from the previous tax year will be lost. Any deposits made on or after this date will be deducted from the new tax year’s allowance.
But keep in mind that it can take some time for banks to process your deposits into your account, so make sure your contributions will be processed before the tax year deadline by depositing the money a few days before. It’s always best to check with your ISA provider on the last date and time you can make deposits for this tax year.
What is the ISA allowance for 2024/2025?
The ISA allowance for the 2024/2025 tax year is £20,000 per year, though it may change in future tax years. You can deposit the full amount in one ISA or spread your allowance across multiple ISA types including Cash ISAs, Lifetime ISAs, Stocks and Shares ISAs and Innovative Finance ISAs. This means that if you save £15,000 in a Cash ISA in the 2024/25 tax year, you can deposit no more than £5,000 in other types of ISA in the same tax year.
The Lifetime ISA (LISA) has a lower annual limit of just £4,000 per tax year, but any money you deposit in your LISA counts towards your total £20,000 ISA allowance. So, if you max out your LISA in 2024/25, you can save or invest no more £16,000 across other types of ISA in the same period. Remember that you can only use the funds in your Lifetime ISA to purchase your first home or fund retirement. If you withdraw your funds for any other purpose, you’ll incur a 25% withdrawal penalty, meaning you may get back less than you paid in.
Learn more: Can I have a Cash ISA and a Lifetime ISA?
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Can you put £20,000 in the same ISA every year?
Yes, you can put £20,000 in the same ISA each tax year, as long as you don’t exceed your annual allowance. This means that if you save the full £20,000 in a Cash ISA, for example, you’ll have to wait until the 6th April to place money in another type of ISA, including a Lifetime ISA.
Remember that the Lifetime ISA has a lower allowance of £4,000 per year.
What happens if you pay more than £20,000 into ISAs in a tax year?
If you pay more than £20,000 into your ISAs in the same tax year, don’t panic. There are a few things you can do to stay in HMRC’s good books:
- Identify which contributions pushed you over the limit. If you have more than one ISA, you’ll need to work out which accounts you continued to pay into after reaching the £20,000 allowance.
- Contact your ISA provider(s). They may be able to refund any sums that pushed you over the ISA limit, so that you’re back in line with ISA rules.
- Contact HMRC. If in any doubt, speak to HMRC directly.
Which ISA is right for me?
If you’re thinking of opening an ISA this year, there are a few things to consider. First, is when will you need to access the money you’re putting away. If you’re able to lock your money away for a year or more, a fixed rate ISA will protect your savings from interest rate fluctuations. You’ll earn a set amount of interest for a specific time period, but you’ll usually pay a penalty if you need to make a withdrawal before the end of the term. If you want the freedom to access your money whenever you want, consider an easy access Cash ISA. You’ll be able to dip in and out of your savings without having to close your account or pay a fee.
Another thing to consider is what you want to use the money for. If you want to save up an emergency fund, an easy access ISA could be the best option. If you want to put savings away to give to your children in a couple of years’ time, which you won’t need to rely on for last minute expenses, then a fixed rate ISA could be the right choice for you.
If you’re a first-time buyer hoping to buy your own home, a Lifetime ISA could be the most rewarding option for you. For every £4 you save, you’ll get a £1 bonus off the government, with a maximum bonus of £1,000 each year. So, if you max out your LISA three years in a row, you’ll have a sweet £15,000 saved towards your first home. And if you and your partner open a LISA each, you’ll get double the bonus!
Keep in mind: If you need to access your money before the age of 60 for something other than your first home, you’ll pay a 25% penalty on the amount you withdraw.
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