ISA and year End

Dondatta

Hi
I am a little confused about how cash ISA's. From what I understand each year a person can open up an ISA which then in the first year gives one £20k tax free savings, the second year then £40k and so on. 
So my question is, if I opened up a cash ISA mid last year, then do I just open up another one this year and how then will the ISA give me £40k of tax free savings as I'll only be able to open an ISA for £20k which will most likely be a fixed rate ISA and my previous years ISA will mature half way through the year so I am confused how I can add this to then get £40k tax free this year? Or is it because I have opened a second ISA in two tax years then I can invest the rest of the money that matures into another ISA in this new year?

eskbanker

You can pay up to £20K per tax year into one or more ISAs and each year you're free to choose whether to open new ones or to continue to fund existing ones (if their initial funding window is still open).

Dondatta

Thank you for the response. 
So would that then mean only £20k each year is tax free. So it does not accumulate to £40k now that you have opened an ISA two consecutive years as that's what seemed to be suggested in the videos online? 
Therefore when one matures and it turns to an easy access saver then it would occur tax on it but then only opening a new ISA in that year would allow £20k tax free but not anything above that. 

FrugaiMacDugal

ISAs work on the tax year, so 6th April 24- 5th April 25.

You will be able to open new ISA after 6th April 25, either with existing provider, or new provider, look for best rates.

Dondatta

Thank you for the post. 
See this paragraph below is what I was referring to
So I was curious then how to in the second year get it to £40k 

eskbanker

Dondatta said:

Thank you for the response. 
So would that then mean only £20k each year is tax free. So it does not accumulate to £40k now that you have opened an ISA two consecutive years as that's what seemed to be suggested in the videos online? 
Therefore when one matures and it turns to an easy access saver then it would occur tax on it but then only opening a new ISA in that year would allow £20k tax free but not anything above that. 

I'm still not sure I'm understanding your interpretation but you categorically can keep accumulating, so many have five, six or even seven figure ISAs!

The £20K limit only relates to new money that you deposit in any tax year, but money already within the ISA wrapper doesn't count towards that and can either stay in the same account or transferred to another ISA (which doesn't count towards the annual contribution limit).  If you have a fixed term ISA maturing then just make sure you get it transferred to a new ISA with the same or another provider, for which there's a defined ISA transfer process which retains its tax-free status. 

Jerben

OP says: ‘Therefore when one matures and it turns to an easy access saver then it would occur tax on it’

No, that’s not true!
What you describe is typically what happens to the many ‘monthly regular savings’ accounts that are NOT ISA’s.

When you put money into an isa, it stays in the ‘tax free’ isa wrapper until YOU withdraw it.
So if you put it in, for example, a one year fixed rate ISA, at the end of the one year term it stays ‘inside’ the isa wrapper and you can select another fixed term or move it to another provider.  Just don’t ‘withdraw’ it.

That way, with £20k inside the isa wrapper, you can, in the second year, add to or open another isa with further monies (up to £20k per year), and have up to £40k in the isa wrapper!

Dondatta

Thank you
That makes more sense now. 

saajan_12

Dondatta said:

Thank you for the response. 
So would that then mean only £20k each year is tax free. So it does not accumulate to £40k now that you have opened an ISA two consecutive years as that's what seemed to be suggested in the videos online? 
Therefore when one matures and it turns to an easy access saver then it would occur tax on it but then only opening a new ISA in that year would allow £20k tax free but not anything above that. 

It does accumulate because you'd leave last year's 20k in an ISA. If it was in a fixed rate then when it matures, the provider would put it in an Easy access cash ISA (not a normal account). You can then re-fix that money including any interest into a new fixed rate ISA, which still counts as last year's money. 

Separately, you can put this year's 20k into either the same or a different ISA, and subsequently keep renewing that within ISAs.

Just remember never transfer the money yourself after the intial deposit. If you ever want to move it, ask the provider to transfer it for you so it keeps its ISA status.