What is the ISA allowance for 2023/24?

The new financial year began on 6th April 2023, and with it came a new year of renewed ISA allowances. This may have raised questions about your ISA allowance and how it works, so we’ve broken down all you’ll need to know for your ISA allowance in the 2023/24 financial year.

What is an ISA allowance?

An ISA allowance is the total amount of money you can save into an ISA within one financial year without paying income tax or capital gains tax on any returns or interest. Your allowances across various investment schemes have the potential to change each year, which is why it’s important to keep up to date with the current year’s allowance.

In the UK, there are four main types of ISA:

• Cash ISAs
• Stocks and shares ISAs
• Innovative finance ISAs
• Lifetime ISAs

You can only put money into one of each kind of ISA each tax year. This means that if you have two different stocks and shares ISAs, you can only pay money into one of them during every tax year. 

The annual ISA allowance for 2023/24 is £20,000

For the 2023/24 financial year, you can save up to £20,000 tax-efficiently. This amount is reviewed and set by the government each year.

This £20,000 can all be invested in a single ISA such as a stocks and shares ISA, or split across other types of ISA such as a cash ISA. However, you can only save into one of each type of ISA each tax year.

At Shepherds Friendly, our Stocks and Shares ISA is a great way to save from £30 a month, while also allowing more potential for growth than a cash-based savings account. In a stocks and shares ISA, savings will be invested across stocks and shares, equities, bonds, and property.

Junior ISA allowance for 2023/24 is £9,000

A Junior ISA (JISA), or child’s ISA, is a tax-efficient savings account which allows you to give a tax-free lump sum to your child as soon as they turn 18. 

The Junior ISA allowance is £9,000 for the current tax year, which is different from adult ISAs. This is the maximum total amount that can be deposited into a Junior ISA before the next tax year (beginning April 6^th 2024).

A child can only hold one stocks and shares Junior ISA each tax year, but they can also hold a cash Junior ISA. The Junior ISA allowance can be spread across both types of plan, as long as you do not exceed the overall allowance.

When does the ISA allowance renew?

The tax year, set by HM Revenue & Customs, ends at midnight on 5th April each year. This means that you get a new ISA allowance starting on the 6th April each year. 

If you are looking to maximise the use of your ISA allowance this financial year, then it is important to remember that the deadline to do so is the 5th April 2023 as allowances do not rollover if you haven’t used it all. 

How can you use your ISA allowance?

When considering how to best use your ISA allowance, there are two main options:

• You can use your ISA allowance in full for a single ISA, such as a stocks and shares ISA, paying in up to £20,000.
• You can split your ISA allowance across multiple different ISAs, with the rule that you don’t pay in any more than £20,000 across all accounts.

Stocks and shares ISAs can include investments in:

• Shares in companies
• Unit trusts and investment funds
• Corporate bonds
• Government bonds

Cash ISAs can include:

• savings in bank and building society accounts
• some National Savings and Investments products

Whichever option you choose, remember you can only save money into one of each type of ISA in each tax year. You also need to be very careful not to save more than the overall limit of £20,000, otherwise you may be liable for tax on your returns.

If you want your savings to make the most of your new ISA allowance in 2023/24, it’s wise to start investing sooner rather than later. As mentioned, this allowance will only last until April 2023; if you don’t use it, you can’t carry any unused allowance over to the following tax year.

Using your allowance to invest in a stocks and shares ISA

The most important thing to remember about opening a stocks and shares ISA is that it carries a higher risk than a bank or building society cash ISA.

As the fund is invested in stocks and shares, there are inevitably risks associated with the performance of financial markets. Unlike a cash-based savings account, where there is normally a set or guaranteed rate of interest on your savings, the returns for a stocks and shares ISA depends on the financial market, meaning that you may get back less than you put in.

Because of this, a stocks and shares ISA should always be considered as a medium to long-term (5 years plus) investment. Making regular withdrawals from your stocks and shares ISA may negatively affect the purchasing value of your investment. Similarly, if you are forced to withdraw from the investment early for any reason, it may mean you get less back than you thought you would.

Be sure to read through our Important Information Guides for all the key information about our Stocks and Shares ISA. Remember that when you invest, your capital is at risk.