The UK ISA allowance is the amount you are allowed to save in an ISA without paying tax on the money you make. The maximum ISA allowance is £20,000 in each tax year.

A Personal Savings Allowance (PSA) is the amount of interest you can earn each year across your bank accounts (excluding ISAs) before you’re liable to pay tax. Your PSA (as it's also commonly known) is dependent on your income. More specifically, the tax bracket you fall into because of your income. 

Those paying income tax at the basic rate (20% on your taxable income) can earn up to £1,000 tax-free interest each year. That means, anything you earn in interest above £1,000 -  in the same tax year -  would be subject to tax. 

However, if you’re a higher-rate taxpayer (40%) your PSA drops to £500 a year. This means you can earn £500 a year in savings interest before you’ll need to start paying tax. Those with the highest income tax rate (45%), are not eligible for any allowance so your PSA would be zero.

With these varying amounts in mind, it's important to note that should you receive a pay rise that pushes you into a higher tax bracket, your savings could suddenly be liable for income tax. It’s also worth remembering that you could reach the allowance threshold sooner than expected if interest rates rise.

Yes, an ISA allowance is effectively a ‘tax wrapper’ separating it from the Personal Savings Allowance (PSA). A ‘tax wrapper’ is considered a tax break, which protects your investments by shielding them from tax, so your PSA does not impact the interest you earn through your ISA.

The ISA limit works differently from a PSA. Instead of being taxed based on how much interest you’ve earned, an ISA limit lets you save up to £20,000 a year tax-free. As an added bonus, this allowance resets to £20,000 each tax year, regardless of how much is already in your account.

What’s more, your ISA Allowance is unaffected by changes in interest rates and does not count towards your PSA. This means you can pay into an ISA without losing your PSA on another type of savings account.

ISA allowances follow the tax year, running from the beginning of April to the end of the following March. If you’re considering opening an ISA, rates for the next tax year are generally available in ISA season in March or early April, however some can be available as early as February so it’s worth doing some early research to find the best rates.

If you already have an ISA, February is also a good time to think about making the most of this year’s ISA account allowance because it won’t carry over into the next tax year.

Yes, having more than one ISA is possible. However, there are some limitations that you need to be aware of.

Firstly, you can only fund one ISA account in a tax year. So if you open an ISA after April 2022, then you’ll need to wait until April 2023 to open another. 

Secondly, having more than one ISA doesn’t increase your ISA Allowance. Your allowance would still be £20,000 per tax year regardless of the number of accounts you have; your limit is £20,000 across one or multiple accounts.

Lastly, you can only add money to one ISA of each type in a tax year. As an example, this means that you can pay into both a Cash ISA and a Stocks and Shares ISA in the same tax year. What you can’t do is add funds into two Cash ISA accounts within the same tax year.    

If you have a Lifetime ISA (LISA), the maximum amount you can deposit into your LISA account each year is £4,000. The remaining £16,000 allowance would need to be deposited into a different type of ISA.

No, ISA interest doesn’t count towards your ISA Limit. Your ISA investment limit is £20k but this only includes payments made into the ISA. Any interest you earn falls outside the savings allowance.

There are five different types of ISA accounts that you can open: Cash ISA, Stocks and Shares ISA, Lifetime ISA, Innovative Finance ISA and Junior ISA.

Cash ISA
Cash ISAs can be either flexible with easy access or keep your savings locked away over a fixed term. The difference between Cash ISAs and ordinary types of savings accounts is the tax-free allowance.

Stocks and Shares ISA
Also known as an Investment ISA, a Stocks and Shares ISA enables you to invest in shares, funds, bonds and investment trusts. Remember, you’re not guaranteed to get back what you invest, as investments can rise and fall.

Lifetime ISA
Lifetime ISAs can be used to either buy your first home or save for later life, but not for both. To open one, you must be over 18, but under 40, and can deposit up to £4,000 a year until you're 50. You’ll also receive a 25% government bonus on your savings, up to a maximum of £1,000 per year.

Innovative Finance ISA
With an Innovative Finance ISA (IFISA), you can invest in peer-to-peer (P2P) lending investments using your tax-free allowance. P2P lending is when you lend money to borrowers and businesses, who then pay it back with interest on top.

Junior ISA
Junior ISAs can be set up by a parent or guardian on behalf of a child, as a way to save specifically for their child’s future. Once the child turns 18, the savings would usually be transferred into a Cash ISA.

If your ISA is flexible, you can withdraw funds at any time. In most cases, funds taken out of a Cash ISA, a Lifetime ISA or a Stocks and Shares ISA are not taxable. In fact, with our Cash ISAs, you can take money out and put it back in during the same tax year, without losing any tax benefits.

However, if you have savings tucked away in a Fixed Rate ISA, you could be liable for an early access charge if you make a withdrawal during the fixed term. If you’re unsure, please check the terms of your account before withdrawing funds. 

It’s also important to note that ISA transfers don’t affect your ISA Allowance. Providing that you use the official transfer ISA form, transferring your savings from one provider to another will not impact your allowance.

Junior ISAs have their own allowance of £9,000 per tax year. This means that parents and guardians can pay into a Junior ISA without it coming out of their own ISA Allowance. Once the child turns 18, the Junior ISA account will be changed into an adult ISA, making them eligible for the £20,000 ISA limit..

If you’re paying into different ISA accounts, then it’s possible to accidentally exceed your ISA limit . If you have more than £20k in an ISA, avoid trying to fix it yourself by withdrawing funds. Instead, get in touch with HMRC who will advise you on how to correct the mistake.