Over the last few years, I have been paying into two different Stocks & Shares ISAs with different providers. However, I have just found out that this was against the rules, and have stopped my payments in.

Could you confirm this and let me know what happens now, and what action I need to take to fix this.

Thanks

Evan

Rachel Vahey, AJ Bell Head of Public Policy, says:

ISAs are meant to be one of the simplest and easiest ways for people to save for their future, including for retirement. And in many ways they are.

But the rules around which types of ISAs investors can pay into and how much they can pay are surprisingly complicated.

Let us start with the basics. There are four distinct types of adult ISA:

1. Cash ISA

2. Stocks & Shares ISA

3. Lifetime ISA; and

4. Innovative finance ISA.

Everyone over the age of 18 can take out an ISA as long as they are resident in the UK. Those aged 16 or 17 can also apply for a cash ISA (but not a Stocks & Shares ISA). However, that lower age will be removed over the next few years, as the minimum age for an adult cash ISA is about to go up to 18.

Those who are younger than 18 can have a Junior ISA – either a cash type or a stocks and shares type or one of each. But they can only ever have one of these. If the youngster already had a cash ISA and the registered contact for the Junior ISA (usually the parent or guardian) wanted to take out a new cash ISA with a different provider so the child would have two cash ISAs, this would not be allowed. They would have to transfer the first ISA to the new provider instead.

People over the age of 18 can also take out a Lifetime ISA before their 40th birthday.

THERE’S A GOLDEN RULE (BUT IT’S CHANGING)

Everyone can have two or more cash ISAs or two or more Stocks & Shares ISAs, but the golden rule is investors can only pay into one ISA type each tax year. So, someone could pay into a Stocks & Shares ISA in the tax year 2022-23, and then set up a brand-new Stocks & Shares ISA with another provider and pay into that one in 2023-24. They just cannot pay into two Stocks & Shares ISAs in the same tax year. (And the same goes for cash ISAs as well.)

To confuse it further, an investor could pay into a cash ISA and a Stocks & Shares ISA in the same tax year. That is allowed. No wonder, people get confused! It is easy to see why some people may have slipped up and paid into two ISAs of the same type in the same tax year.

The good news is the government is simplifying the situation. From 6 April 2024 investors will be allowed to pay into two or more cash ISAs in the same tax year, and the same for two or more Stocks & Shares ISAs. This is very welcome.

But that does not change the fact that up to this point this has not been allowed. If someone has already paid into two different Stocks & Shares ISAs in the same tax year, then they need to contact the provider of the most recent ISA and let them know the situation.

The most likely outcome is the second ISA provider will refund the payments into the ISA and close or void the ISA.

WHAT ARE THE LIMITS?

Finally, a quick word on how much people can pay in. They can pay in up to £20,000 a year into an adult ISA. This could be split across a cash ISA and a Stocks & Shares ISA.

A younger investor can also pay up to £4,000 into their Lifetime ISA. But this must be counted as part of the overall £20,000 limit. For example, they could pay £4,000 into their Stocks & Shares Lifetime ISA, £5,000 into their adult cash ISA, and £11,000 into their Stocks & Shares ISA.

Lastly, up to £9,000 a tax year can be paid into a Junior ISA. Again, that could be split over a cash Junior ISA and a Stocks & Shares Junior ISA.

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