ISA clarification

Phaelok

Happy New Year! I hope you're all doing well.

I would appreciate some guidance regarding my ISA contributions for the upcoming financial year.

I am a higher-rate taxpayer with an annual income slightly above £60k. Currently, I have £21k in a Marcus bank account and £16k in a Lifetime ISA.

To avoid paying interest on the £21k in my savings, I am considering the following contributions for the 2025-2026 financial year:

1. Contributing £20k to a Cash ISA, and £4k to the Lifetime ISA. However, I would like to clarify whether the overall ISA contribution limit of £20k applies across all accounts combined, meaning I would only be able to contribute £16k to the Cash ISA and £4k to the Lifetime ISA, or whether I could allocate the £20k across both as proposed.

Any advice would be greatly appreciated.

ColdIron

It's a £20,000 limit across both accounts. i.e.the annual allowance, so that'll be £16,000 and £4,000 in 2025/26

Phaelok

Thank you, ColdIron. 

I am also waiting to hear what reforms will be made to the Lifetime ISA. I don't wish to be penalised with the 25% charge, although significant changes to the product will hopefully allow a cooling off period for people like me to withdraw my money. 

masonic

The outcome of the consultation won't be known by the start of the next tax year. So the best approach will probably be to contribute up to £16k to a cash ISA and wait to see whether the other £4k is better placed in cash ISA or LISA.

What is your intention for the LISA? If it is a retirement account then I don't think there is anything in the proposals that would impact that.

Whereas for first time house purchase, it seems a more bespoke product is being considered. With £16k already in the existing product, the hope would be some sort of one-time transfer offer like happened for the HTB ISA when the LISA was introduced. But a wait and see approach may be worthwhile unless you are planning to buy next year. I can't see them closing the existing product from use for a house purchase, and being £16k deep in that, the changes may not be relevant to you if in the house purchase camp.

I suppose it is worth mentioning that pension contributions can be utilised to bring your relevant earnings below the higher rate threshold to regain the other £500 of personal savings allowance if that's not something you are already doing. But that may conflict with a primary objective of home ownership.

Albermarle

I would appreciate some guidance regarding my ISA contributions for the upcoming financial year.

To avoid paying interest on the £21k in my savings, I am considering the following contributions for the 2025-2026 financial year:

You say you are looking at the upcoming financial year, but then talk about contributions in 2025/2026, which is the current financial year ?

Phaelok

Albermarle said:

I would appreciate some guidance regarding my ISA contributions for the upcoming financial year.

To avoid paying interest on the £21k in my savings, I am considering the following contributions for the 2025-2026 financial year:

You say you are looking at the upcoming financial year, but then talk about contributions in 2025/2026, which is the current financial year ?

My apologies. I meant for the 2025-2026 financial year. 

I intend to use the LISA as a retirement account. I have no mortgage and am fortunate to own my house outright.I will wait to see what they announce for the LISA...fingers crossed! 

masonic

Phaelok said:

Albermarle said:

I would appreciate some guidance regarding my ISA contributions for the upcoming financial year.

To avoid paying interest on the £21k in my savings, I am considering the following contributions for the 2025-2026 financial year:

You say you are looking at the upcoming financial year, but then talk about contributions in 2025/2026, which is the current financial year ?

My apologies. I meant for the 2025-2026 financial year. 

I intend to use the LISA as a retirement account. I have no mortgage and am fortunate to own my house outright.I will wait to see what they announce for the LISA...fingers crossed! 

Then I see no reason to believe the changes will have a material impact on your plans. Despite that, it probably still makes sense to pause any 2026/7 contributions until there is clarity.

Phaelok

masonic said:

Phaelok said:

Albermarle said:

I would appreciate some guidance regarding my ISA contributions for the upcoming financial year.

To avoid paying interest on the £21k in my savings, I am considering the following contributions for the 2025-2026 financial year:

You say you are looking at the upcoming financial year, but then talk about contributions in 2025/2026, which is the current financial year ?

My apologies. I meant for the 2025-2026 financial year. 

I intend to use the LISA as a retirement account. I have no mortgage and am fortunate to own my house outright.I will wait to see what they announce for the LISA...fingers crossed! 

Then I see no reason to believe the changes will have a material impact on your plans. Despite that, it probably still makes sense to pause any 2026/7 contributions until there is clarity.

It's a difficult decision to make as I haven't made the £4k contribution to the LISA for this financial tax year. As you say, I doubt any decision will be made before April 2026. 

se2020

Phaelok said:

masonic said:

Phaelok said:

Albermarle said:

I would appreciate some guidance regarding my ISA contributions for the upcoming financial year.

To avoid paying interest on the £21k in my savings, I am considering the following contributions for the 2025-2026 financial year:

You say you are looking at the upcoming financial year, but then talk about contributions in 2025/2026, which is the current financial year ?

My apologies. I meant for the 2025-2026 financial year. 

I intend to use the LISA as a retirement account. I have no mortgage and am fortunate to own my house outright.I will wait to see what they announce for the LISA...fingers crossed! 

Then I see no reason to believe the changes will have a material impact on your plans. Despite that, it probably still makes sense to pause any 2026/7 contributions until there is clarity.

It's a difficult decision to make as I haven't made the £4k contribution to the LISA for this financial tax year. As you say, I doubt any decision will be made before April 2026. 

Firstly I'd say you may want to look at the suitability of the lisa as a retirement fund. I don't think it's generally considered to be the best option especially if you are a higher rate tax payer.
Although it will depend on your age now, anticipated retirement age, and if you have other pension savings etc..

On the original question, as mentioned,  it's 20k in total across all types of isa.
This is being cut to 12k in 2027 for cash Isa's but I'd guess you are using S&S so that will still be 20k

My thinking would be this: (depending on the interest rates for Marcus & the Lisa), say they are both at 4%
The money sat in the Marcus account will earn you £840 in interest over the next year but you will loose £336 of that in 40% tax (leaving you £504)

Pay £4k of it into a Lisa and it will get a £1k bonus then you will earn £200 tax free interest making you £1200 (£696 better off)

Pay the other £16k into a cash isa and that's another £640 in tax-free interest giving you a total of £1336 for the year. 
That's £832 better than leaving it sat in the Marcus.

If you then need to withdraw the £4k from the Lisa you'll need to withdraw £5333.
So you'll end up with the £20k you started with plus the £832 interest so you'll still be £328 better off than leaving it sat in Marcus.

Even if you forgot about using the full isa allowance it might still be worth putting £4k into the lisa now (current tax year) as otherwise you'll never get the opportunity for this year's £1k bonus again.
If you need to take that £4k out again next week you'll loose £250 of your own money against a potential gain of £1000 of free money.
As you don't seem to need the £4k for anything else that seems like a worthwhile gamble to me?

If you only have the 2 accounts mentioned in the first post then the numbers will be different as you'll have a £500 ps allowance so you'll only pay £136 in tax on the Marcus interest bit, as I said above, you'll have to consider if the need to use the money is likely to arise in the near future. 
Alternatively, you could keep enough balance in the Marcus to fully utilise the remaining £500 psa or even look at masonic's point above about removing tax on that account completely