I have a stocks and shares Isa account with a traditional platform allowing me to invest in shares and funds.
I’m intrigued by the new investment platforms that manage your money for you and am considering opening an account with one of them to use up some of my Isa allowance before the end of the tax year.
But I am not sure whether this is allowed. Can I invest in more than one Isa?
While you are free to have multiple Isas of the same kind open, you can only pay into one in each tax year
Myron Jobson, of This is Money, replies: The short answer to your question is yes, but you can’t put new money into more than one of the same type of Isa in the same tax year.
So if you have invested money into your existing stocks and shares Isa this tax year, you’ll have to wait until after 6 April (when new tax year starts) to invest any money in a different one.
A stocks and shares Isa is the official term for an investing Isa and covers those invested in shares, funds, investment trust and ETFs, whether directly yourself with a DIY investing platform, such as Hargreaves Lansdown, with a financial adviser, via a fund manager, or through the new breed of online wealth managers, such as Nutmeg or Moneyfarm.
Clearly, all of those different routes above offer different things, but you are restricted to putting new money into only one account each tax year.
How does this work?
First, let’s tackle the bread and butter stuff. Britons can open one of each type of Isa in each tax year.
These are: cash, stocks and shares, innovative finance, Lifetime and Help to Buy.
Everyone has an annual tax-free Isa savings allowance. The allowance currently stands at £20,000 – having been increased from £15,240 last tax year.
The Help to Buy Isa and Lifetime Isa allowances are lower than the overall Isa allowance. You can save up to £200 a month in the former and £4,000 a year in the latter.
Isa savings must be made on or before 5 April to qualify for the allowance for that tax year. The allowance can’t be rolled over to the next tax year, so if you don’t use it, you lose it.
This is where it gets a bit complicated. You can split the allowance whichever way you like between the different Isas in market.
So, you are allowed to put money into more than one Isa each year, but crucially the Isas have to be different types.
Existing Isas that you paid into in previous tax years can remain invested, but you musn’t pay new money into them one and a new one.
If you open a second investment Isa, your original account would effectively be put on ice for that year – although you can still make gains on your past investments.
It is possible to pay into both a cash Isa and an investment Isa up to the £20,000 threshold.
This system is a hangover from days gone by when people typically invested through a financial adviser or direct with a fund manager.
It looks increasingly archaic in a world where DIY investing platforms offer multiple types of investment and are better for a variety of things.
For example, Nutmeg, which builds a portfolio for you, does something completely different to Hargreaves Lansdown, where you choose your own funds ans shares – but investors are prevented from splitting their money between the two styles, or dabbling with one to try something new.
Because you’re restricted to making new investments into just one of your Isa accounts a year, it’s worth having a look under the bonnet of the different platform options to identify the best fit for the type of investor you are.
Do you want your platform to offer a wealth of investment options, or is keeping administration cost to the absolute minimum your priority – even if this comes at the expense of choice?
There is a seldom a catch-all solution so you’ll probably have to make a compromise somewhere. For more information on this, read our guide on how to choose the best (and cheapest) DIY investing Isa.
Bear in mind the Help to Buy Isa is a cash Isa. There is one cash Lisa and the rest are investment Lisas. The innovative finance Isa is an investment Isa.
Consider transferring your Isa
Another option worth considering is transferring your Isa. You can do this as long as your chosen provider allows and facilitates the process.
The best part about transferring Isas from previous years is it does not affect your Isa allowance for the current year.
But if you want to transfer money you’ve invested in an Isa during the current year, you must transfer all of it. For cash saved in previous years, you can choose to transfer all or part of your savings.
The major investment platforms charge to transfer out your investment Isa but it can be worth it if the other platform best meets your investment needs.
Similarly, cash Isa providers might charge a penalty for transferring so check for any fees to make sure transferring is still worthwhile.
You can transfer any uninvested cash from your innovative finance Isa to another provider – but you may not be able to transfer other investments from it so important to check with the provider. They may also levy a charge.
As mentioned before, savers are governed by a ‘one Isa per person, per year’ rule, but previous years’ savings don’t count.
So you can transfer previous years’ savings and open an Isa under the same banner in the same tax year if you so choose – as long as you don’t put new cash in both.
How to switch
Switching providers isn’t simply a case of withdrawing all your money out of your old account and placing it into the new one. You lose the tax-free status on the cash if you do.
To switch Isa providers, you must go through the official avenue of contacting the provider you want to move to and complete a form with the account number and details of your old Isa.
A cash Isa and a cash Lisa transfer should take no more than 15 business days.
It’s 30 days for a stocks and shares Isa, investments held in an innovative finance and stocks and shares in a Lisa.
A one-off special rule means that you can transfer the full value of your Help to Buy Isa into a Lisa without out it affecting your annual contribution limit before the new tax year.
You’ll only be able to transfer your Help to Buy up to the £4,000 limit thereafter and this will come out of your Lisa allowance.
What happens if I mistakenly open or put new cash into two of the same type of Isa in one year?
The key thing here is don’t take it upon yourself to correct the situation.
Remember, money taken out of the Isa wrapper loses its tax-free status. As soon as it’s paid in, the cash is counted as an Isa contribution whether you take it out or not.
You should call the Isa Helpline on 0845 604 1701 to discuss the error.
HMRC would know from its records that you’ve over-subscribed and a representative will give you a call to advise you on what action you need to take if you haven’t contacted them already.
The good news is HRMC will not come down hard on you if it was a genuine mistake. You’ll likely get away without punishment and get to keep the tax-free Isa status on the cash.
However, if you are a repeat offender, HMRC would force you to pay tax on any interest earned (or give back tax relief on investments if it’s a stocks and shares Isa) on the second account.