The new ISA rules: what they mean for you

You’re probably well aware that ISAs are one of the best ways to shelter your money from tax - but they’ve been subject to fiddly rules that could baffle even the savviest savers for years.  

You’ve had to pay careful attention to the accounts you open and pay into each year, be vigilant on how you transfer money from one account to another and jump through hoops if you want to use old ISAs. 

Thankfully, in April this year, (following their announcement in the 2023 Autumn Budget) a handful of rule changes were introduced, and they bring some pretty helpful news.  

Although they might not look like much on first inspection, the updates are intended to make it easier to manage your savings and add a bit more flexibility to your financial plans.  

And, while you (of course) still need to be careful with your money when opening and paying into ISAs, it shouldn’t be quite so easy to inadvertently break the rules and have to deal with HMRC to correct the situation. 

So, what’s changed and how can it help you? 

You can now open multiple ISAs of the same type each year 

There was previously a confusing rule that meant you couldn’t pay into more than one ISA of the same type each financial year. So, while you could put money into one cash ISA and one stocks and shares ISA, you couldn’t pay into two cash ISAs, for instance. 

“Luckily that rule has now been scrapped, so you can pay into as many of each type of ISA as you like each year,” says Laura Suter, Director of Personal Finance at investment platform, AJ Bell. 

“This is particularly handy in the cash ISA market, as it means you can take out a cash ISA that has a good rate, but if the rate drops later in the year or a better one comes along, you can open that second account too.  

“Likewise, you could now open one easy-access Cash ISA and one fixed-term cash ISA in a year. Previously you were wedded to the first cash ISA account that you picked.” 

But while this change is welcome, Alice Haine, Personal Finance Analyst at online investment service BestInvest, says anyone who is taking advantage of this new flexibility must be careful not to fall into another trap. 

“While making it easier to pay into multiple pots simplifies ISA saving, it does not remove the confusion entirely as people can still break the rules if they don’t track their contributions carefully.  

“People may forget how much they have contributed to each ISA, putting them even more at risk of breaching the £20,000 allowance cap.” 

ISA transfers aren’t quite so fiddly 

ISA transfers allow you to move money from one ISA to another. You might do this to access better savings rates or to switch to a cheaper investment platform. Alternatively, you might want to move money into a different type of ISA altogether. 

For example, you might choose to transfer money from a stocks and shares ISA into a cash ISA, to reduce risk and protect your potential income as you get older.  

After all, investments can go up and down in value, and you could get less than you put in, but cash accounts will provide a clear rate of interest when opened.  

However, if you decide you’ve actually got enough cash stashed away and want to move it into a stocks and shares ISA to try and boost your retirement finances, that’s now easier too. 

Thanks to new rules, this process should now be a bit less fiddly and allow people to manage their savings and investments more flexibly. 

Haine explains: “Under the old rules, savers wanting to transfer money paid into an ISA within the last financial year had to transfer the entire balance. However, they could transfer all or part of their savings from previous years.” 

“Under the new system, savers can now transfer part, or all, their ISA allowance to another provider - no matter when the contribution was made. It means people can move savings between ISA pots more easily.” 

Sarah Coles, Personal Finance Analyst at Hargreaves Lansdown agrees: “The real benefit of this is that it means someone who wants to transfer some money from an ISA – and has paid into the same one for more than one year – no longer needs to do complex calculations to work out how much of it they can transfer.” 

You no longer need to reactivate ‘old’ accounts 

Previously, if you opened an ISA and then didn’t pay into it for a year or more, it would be classed as ‘dormant’, says Suter.  

“That means if you wanted to pay into it in a future year, you might have been asked to reapply for the account. Most of the time this would involve filling in a form and you wouldn’t be able to pay more money in until you’d completed this admin.  

“[The UK Government] has now scrapped this, which is a big help for people who don’t always pay into their ISA every year.” 

Are these changes enough? 

These changes remove some of the red tape that made managing your ISAs complicated, but our experts aren’t convinced that the changes have gone far enough. 

Haine says: “The rules may be simpler, but savers still run the risk of paying too much in and exceeding the maximum annual subscription limit of £20,000. Plus, the current annual limit  has remained the same since April 2017.” 

Suter agrees: “Investing can be simple and straightforward, and ISAs have been successful largely because they are relatively easy to understand.  

“But...Brits are currently faced with a choice of six types of ISA when deciding where to invest for the future, with different rules and allowances further clouding the picture.”  

For example, the Lifetime ISA, or LISA, which is only available to those aged between 18 and 40 and intended to help them save for a first house purchase or later life, has a different allowance and a government bonus not included with other ISA accounts. 

(However, it should be noted that nobody over 50 has been able to open a LISA, as they only became available in 2017). 

There are also more changes on the horizon too, with the British ISA potentially allowing savers to put an extra amount of money away each year – provided it’s invested in British companies. 

“The potential introduction of another ISA in the form of a British ISA would add more complexity,” Suter adds. 

This means that it’s important to stay abreast of all the rules relating to opening and holding ISAs to make sure you’re using the right one for your money.  

While it can seem a little confusing at the outset, if you invest some time getting your head around the benefits of each kind of ISA, you’ll be able to maximise your savings and get the best returns too.