Use it or lose it: Brits have just days to use up their 2023/24 ISA allowance

The end of the tax year is nigh. On Saturday 6 April the 2024/25 tax year begins which is big news for those looking to save or invest tax-free.

In this article NimbleFins explains all you need to know about making the most of your annual ISA allowance.

What is an ISA?

An Individual Savings Account (ISA) allows you to save or invest tax-free.

You don’t have to pay tax on interest earned from money stashed in a cash ISA for as long as it stays within a tax-free wrapper. In contrast, interest earned from a normal savings account is subject to tax if the interest exceeds your Personal Savings Allowance.

For Stocks & Shares ISAs, any capital invested stays free of income, capital gains, and dividends tax.

Sadly, but perhaps not unsurprisingly, you can’t put unlimited amounts into an ISA. That’s because there’s a maximum amount any individual can save or invest in an ISA during each tax year. This is known as the ‘ISA Allowance’.

What is the ISA allowance?

Every adult living in the UK gets an annual ISA allowance. For the current tax 2023/24 tax year, the ISA allowance is £20,000. This means that you've until 11.59pm on Friday 5 April to use up your £20,000 allowance for the current tax year. However, do note that waiting until the last minute is probably not the wisest of moves. Although opening an ISA can take as little as 10 minutes in some cases, delays can happen due to ID checks, or if you need to wait for funds to clear. This is why when it comes to opening an ISA, it's best to act sooner rather than later.

The ISA allowance applies to all types of ISA, so you’re allowed to split your allowance between different ISAs if you wish. For instance, you can split your allowance between a Stocks and Shares ISA, a Cash ISA, an Innovative Finance ISA, and a Lifetime ISA — though you can only put up to £4,000 per tax year into a Lifetime ISA.

And while you can split up your ISA allowance between different ISA types what you can’t do is exceed your total £20,000 annual allowance across them.

What is the ‘use it or lose it’ rule?

Despite rising inflation, the annual ISA allowance has now been frozen at £20,000 for six years. It was last increased for the 2017/18 tax year by then-Chancellor Philip Hammond, after it was raised from £15,240 to its current level.

For the 2024/25 tax year — which begins on 6 April 2024 — the ISA allowance will, yet again, remain at £20,000 (though there are some changes coming — see the section below).

If you’re thinking of opening or adding to an existing ISA, then it’s worth bearing in mind the ‘use it or lose it’ rule.

Put simply, if you don’t use up your full ISA allowance in any given tax year then you lose it — forever. In other words, even if you don’t make the most of your ISA allowance during the current tax year, you can't carry over a proportion of your unused allowance to a future tax year.

So, given the new 2024/25 tax years begins on 6 April, if you're hoping to use up this year’s allowance you'll need to get your skates on!

What is changing with ISAs in 2024/25?

While there is no change to the £20,000 ISA allowance, Chancellor Jeremy Hunt did announce some ISA rule changes for the 2024/25 tax year during last year's Autumn Statement. Here’s an overview of the changes...

1. The option to pay into multiple ISAs. From 6 April 2024 ISA holders will be able to pay into the same type of ISA during the same tax year. For example, if you save in an easy-access ISA with one provider, you’ll be allowed to move some (or all) of your money to another provider during the same tax year. This rule change should make it easier for cash ISA holders to chase higher rates.

On a similar note, from 2024/25 ISA holders will also be able to mix things up with regards to account types within the same ISA group. For example, a saver will be allowed to split their cash ISA allowance between easy-access and fixed ISAs.

2. Partial transfers. Another change happening for 2024/25 is the introduction of partial transfers between providers. Currently if an ISA holder wishes to move their ISA, they must move all of it as part of the clunky ISA transfer process. However, for 2024/25 ISA holders will be able to move as much (or as little) cash as they like to another provider, giving greater flexibility.

3. Reduced bureaucracy. Under current rules, if you haven’t subscribed to an ISA for over a year then you typically need to reapply for a new ISA to save or invest tax-free in the future. This rule is being shelved for 2024/25.

4. A higher age limit. Right now those aged 16+ can open an adult ISA. However, from 6 April the minimum age limit for holding an adult ISA is being raised to 18 years old. However, don’t forget that 16 and 17 year olds can still hold a Junior ISA, which work similar to adult ISAs. The big difference is that the Junior ISA annual allowance is a lower £9,000.

5. Fractional shares to become ISA-eligible. If you hold a Stocks & Shares ISA then you may already know that you're not allowed to hold fractional shares in it. (A 'fractional share' is a portion of a whole share of a company's stock). For 2024/25, however, change is coming. The Treasury recently announced that it plans to allow certain fractional share contracts to be held within ISA investments.

A new ‘British ISA’ is in the works…

Besides the above, it’s possible we’ll see the introduction of a British ISA in the future, though possibility not until 2025.

First revealed in the recent Spring Budget, the British ISA is set to give Stocks & Shares ISA holders an additional £5,000 ISA allowance — on top of the existing allowance — to be used to hold British-based shares.

Because it’s only just been announced, details of the British ISA are currently thin on the ground. What we do know, however, is that a consultation on how to design and deliver the product is already up and running and will end in early June.

However, because the new tax year starts in a matter of days it's likely investors will have to wait until the 2025/26 tax year until any British ISA comes to fruition. Of course, if the UK elects a new Government this year then there’s a chance the idea could be scrapped before it's implemented.

Do you want to learn more about ISAs? To discover the pros and cons of the different ISA types, take a look at our article that explores Cash ISAs vs Stocks & Shares ISAs.

Disclaimer: ISA Tax treatment depends on your individual circumstances and may be subject to change in the future. This article does not constitute any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.