10 ways to make use of your £20k ISA allowance

With the end of the tax year approaching, here are 10 ways to make the most out of your £20,000 ISA allowance before 5 April

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(Image credit: Witthaya Prasongsin)

The end of the tax year is looming, which means time is of the essence to take advantage of your ISA allowance for 2023/24 before 5 April. 

The ISA is turning 25 this year, but historically, cash ISAs haven’t offered great returns to savers when compared with the best savings accounts on the market. 

However, since interest rates hit a 15-year high, millions of people could be set to pay tax on savings interest earned- making the £20,000 tax-free ISA allowance more attractive. 

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Alice Haine, personal finance analyst at Bestinvest warns: “Remember, this is a ‘use it or lose it’ allowance because you cannot carry it into the next tax year if it isn’t used. 

“No one wants to pay tax on money they have already been taxed on, and savers looking to secure this year’s £20,000 allowance in full before it disappears must fund an account with that amount by April 5.”

So, if you haven’t already maximised your £20,000 ISA allowance, here are 10 ways you can stash your savings away from the taxman. 

10 ways to make use of your ISA allowance

Whether you want to save money, invest or save for your children’s future, there’s an ISA for all your needs. Here are 10 ways to take advantage of your ISA allowance before 5 April.  

1. Save in a cash ISA 

An estimated 1.3 million more people are set to be dragged into the higher 40% tax band this tax year according to the Office for Budget Responsibility

But any money in an ISA of up to £20,000 per tax year does not count towards your personal savings allowance (PSA). The PSA was introduced back in 2016 and hasn't changed since. 

However, last April the Chancellor reduced the additional rate of income tax threshold from £150,000 to £125,140, pushing more people into the highest tax bracket. 

Here’s your personal savings allowance based on your tax band. 

Swipe to scroll horizontally
Tax bandPersonal savings allowance
Basic-rate taxpayers (20%)£1,000
Higher-rate taxpayers (40%)£500
Additional-rate taxpayers (45%)No allowance

As interest rates are at an all-time high, savers can earn over a handsome 5% on a cash ISA right now. You can get 5.1% with Harpenden Building Society’s easy-access ISA, and if you want to fix for a year, Virgin Money is offering 5.25% AER. 

Rates on a cash ISA are similar to traditional savings accounts, which are also offering above 5%- but with an ISA you get the £20,000 tac wrapper. 

According to Bestinvest, for every £100 in interest earned above the PSA on a standard savings account, a basic rate taxpayer would only take home £80. For higher-rate taxpayers, £100 in interest would leave just £60 after tax deductions, while a higher-rate taxpayer would only get £55. 

2. Invest in a stocks and shares ISA 

If you invest your money in a stocks and shares ISA, you will be protected from capital gains tax (CGT) and your dividend allowance won’t be affected, as dividends earned through an ISA are not taxable. 

The annual CGT exemption has already been lowered to £6,000 in the current tax year, and this is set to halve again in April to £3,000. The tax-free dividend allowance has also halved to £1,000, and will dip further to £500 in the new tax year. 

Haine said: “Sharp cuts to the annual dividend allowance and capital gains exemptions at the start of the current tax year - with both set to halve again from April 6 – have been a wake-up call for savers and investors. 

“Add the frozen Personal Savings Allowance into the mix and it means savers and investors are far more likely to pay tax on the money they have carefully stashed away, making ISAs more important than ever.”

3. Open your ISA now, invest later

If you’re looking to invest in ISA shares and funds but need more time to figure out your investment options, you can still store your cash in a stocks and shares ISA before 5 April and shield up to £20,000 from the taxman. 

After your money is stored in the ISA, you can invest your money later. There are investment platforms that will pay interest on your ISA funds before investing, but it’s worth checking which platforms offer this. 

Plus, there are some platforms offering a cashback bonus of up to £2,000 when you open an ISA with them, subject to eligibility.  

4. Open different ISAs for different goals  

You can split your £20,000 ISA allowance by opening different types of ISAs, depending on your goals. 

For example, those aged between 18 and 39 years old can open a Lifetime ISA (LISA) and save up to £4,000 per year for their first home.

The government then tops up 25% of your balance in your ISA each tax year. So, if you save a maximum of £4,000, the government would top up £1,000 that year. 

That leaves £16,000 each tax year to save in a different type of ISA. 

After the age of 39, you can continue to save in the LISA for retirement and still receive the 25% top-up per year, up until the age of 50 years. 

5. No need to declare ISA savings on your tax return  

When you do your tax return, you don’t need to declare any gains or income when you do your self-assessment- making the process that bit simpler and the given, less tax to pay.  

6. Open a Junior ISA for children's savings  

If you have children, you can save for them in a Junior ISA (JISA). Though the tax-free allowance is capped at £9,000 per tax year in a JISA, it’s still well worth it, considering your savings are shielded from the taxman. 

Similar to adult ISAs, a JISA protects your savings from CGT and income tax. The money saved in a JISA can’t be withdrawn until your child turns 18 years old- at which point the account will turn into an adult ISA automatically. It’s a great investment for children later down the line, to pay for a new home or university fees. 

If you invested £9,000 per year for 18 years based on an annual interest of 5% in a JISA, after 18 years you would end up with £269,048.

7. Use bed and ISA if you don’t have cash to invest right now 

If you already have money held up in shares, and you don’t have any more cash to put into an ISA right now, you can use the ‘bed and ISA’ method. 

If you have investments in the form of share certificates or in a General Investment Account, you can sell your shares or funds and repurchase them within an ISA. This means any future returns will be shielded from tax on up to £20,000 per tax year. 

If you are looking to push existing shares or funds into an ISA before this tax year ends, you will need to act sooner rather than later to allow time for everything to be processed. 

8. If you’re married, double your ISA allowance 

If you’re married, you can double up your ISA allowance to £40,000 per tax year through ‘interspousal transfers’.

This means your savings and investments can be switched between yourselves without paying extra tax on transfers. When transfers are done between married spouses, this also isn’t flagged to HMRC, and it allows you both to shuffle what you would like to allocate to different ISA investments. 

But do consider that when anything is transferred to your partner in their name, they have legal right over the funds. 

9. Invest regularly

Although there is a £20,000 limit on an ISA, it doesn’t mean you need to invest or save a lump sum of £20,000 in one go. You can drip feed your money depending on how much you can afford. 

If you want to make use of the £20,000 allowance, you can transfer £1,666.67 per month, or set up a standing order for this amount to go into your ISA. 

10. Take advantage of ISA flexibility 

If you don’t want to fix your savings away and are looking for some flexibility, you can open an easy-access cash ISA, which traditionally gives you freedom with withdrawals without affecting the interest rate. 

But, before opening an easy-access ISA, it’s worth checking the terms and conditions, as some easy-access accounts do impose restrictions on how many times you can access your money per year. 

For example, the Moneybox cash ISA offering a top-paying 5.09% AER is said to be easy-access, but only permits up to 3 withdrawals per year. 

Also consider a caveat with an easy-access account, that the rate you earn on your ISA is variable, so it can change at any time depending on market movement. 

Vaishali Varu

Vaishali graduated in journalism from Leeds University and she has experience working with the likes of Leicester Mercury, Inews and The Week. She also comes from a marketing background, where she has done copywriting and content creation for businesses. 

Currently writing about all things personal finance, Vaishali is passionate about finding the best deals around, whether it's the best credit cards or the cheapest personal loans, as well as sharing top money hacks to help people save and better manage their money.