For any investor, making an effective use of your ISA allowance is an important part of your overall investment strategy. The ISA allowance (currently set at £20,000 per annum for the 2018/19 tax year) effectively amounts to an annual pot that can be invested without incurring any tax on the gains.
But how exactly can you use that allowance? There’s lots of different types of ISA, so how many can you open and invest in at once?
How many ISAs am I allowed?
To understand the limits on allocating your £20,000 allowance, it helps to know the different types of ISA available. They are cash ISA, stocks and shares ISA, innovative finance ISA, Help to Buy ISA and Lifetime ISA (the Junior ISA isn’t included in the allowance) – you can get a more in depth overview of these here: What different types of ISA are there? And what's the best ISA for me?
The good news is that you can be invested in any mix of these that suits you, and for which you qualify. Other than the age limit on the Lifetime ISA, there is nothing to stop you from splitting your annual allowance across all the different types of ISA available.
However, there is one additional restriction. In each tax year, you can only pay into one ISA per category.
So while you can split your annual allowance between cash, equities and peer-to-peer lending through your ISA in any given tax year, you can’t invest into more than one of the same type. For example, you can’t invest into two different stocks and shares ISAs during the same tax year.
What about transferring old ISAs?
The important point to remember is that the limit only applies to new ISA money. So, if you wanted to transfer ISA money from any old ISAs from previous tax years, you could do so into as many ISAs of each type as you like.
How do I make the most of my ISA allowance?
To get the most out of your annual ISA allowance, you have to be aware of both the flexibility and limitations of investing in ISAs.
The flexibility of being able to invest across different ISA categories means you can split available capital across a variety of risk profiles.
But remember, you can only put new money into one cash, stock and shares, Lifetime and innovative finance ISA per tax year. Once you’ve started paying into an ISA, you won’t be able to change your mind ‘til the following tax year. So make sure you choose wisely.
Don’t forget, investment ISAs place your capital at risk, and it is possible you’ll get back less than you put in. Also, tax treatment depends on individual circumstances, and could be subject to change.