Brits Alerted to ISA Error Preventing Full Use of Annual Allowances
Brits have been issued a stark warning that a common ISA mistake is preventing them from making the most of their annual allowances. This error stems from a widespread misconception that individuals can only hold one ISA at a time, a belief that is no longer accurate under current regulations.
Rule Changes on ISA Ownership Clarified
Dan Coatsworth, head of markets at AJ Bell, explained the shift in policy. “A lot of people don’t realise the rules have changed on ISA ownership,” he stated. Historically, savers were restricted to paying new money into just one ISA of each type per tax year. However, this limitation has been lifted.
“There are now no limits on the total number of ISAs you can open in a tax year,” Coatsworth emphasised. The only exceptions to this flexibility are Lifetime ISAs and Junior ISAs, where contributions are still capped at one account of each type annually.
To leverage this new flexibility effectively, Coatsworth advised vigilance. “If you want to make use of this flexibility, just make sure you are keeping track of what you’ve paid in and where, to make sure you don’t go over your ISA allowance.”
Choosing the Right ISA for Maximum Benefit
Equally crucial is selecting the appropriate type of ISA, as some offer superior returns compared to others. Common options like Cash ISAs or Stocks and Shares ISAs serve as vital tools for families aiming to save money each year. However, for those saving towards their first home, a Lifetime ISA presents an invaluable opportunity.
Coatsworth highlighted a specific scenario where savers might be missing out. “You may have picked a Stocks and Shares ISA to save for the deposit for a first home, but you could have benefitted from the 25% government bonus available on the Lifetime ISA.” He added, “Everyone loves free money, but only Lifetime ISA holders get the extra cherry on the cake.”
For parents saving for their children, Coatsworth pointed out another strategic consideration. “Equally, if you’re saving for your child, paying into a Junior ISA might be better than saving the money into your own ISA.” This approach allows children to utilise their own allowance, thereby preserving the parent’s ISA limit.
Key Takeaways for Savers
- Multiple ISAs can now be opened in a single tax year, with exceptions only for Lifetime and Junior ISAs.
- Lifetime ISAs offer a 25% government bonus, making them ideal for first-time home buyers.
- Junior ISAs provide a separate allowance for children, optimizing family savings strategies.
- Careful tracking of contributions is essential to avoid exceeding annual allowances.
This alert serves as a timely reminder for Brits to review their savings strategies and ensure they are fully capitalising on available ISA benefits to enhance their financial security and future planning.
