An Individual Savings Account (ISA) is a smart way to save and invest without needing to worry about paying extra tax on your interest or dividend income. The amount you can put into an ISA (or ISAs) annually is limited - read on to learn about what happens if you accidentally exceed this limit in a tax year.
ISA options
Firstly - let’s break down the options for ISAs in the UK.You can choose between 4 different types of UK ISA, including the most popular options of a cash ISA or a stocks and shares ISA. You can pay into your ISA to a set limit annually, based on the tax year, with ISA limits being reassessed periodically by the government.
What is the current ISA limit?
The 2024/2025 ISA limit, set by the UK government, is £20,000. But what happens if you accidentally put more than that into your ISA (or ISAs) over the course of a given tax year? Does my ISA allowance carry over between tax years, allowing me to simply roll my payments over to the next year?
Unfortunately, the answer here is no. ISA allowances do not roll over from one year to the next, and so you’ll need to make sure you use your ISA allowance before the end of the tax year to benefit (i.e. by 5th April 2025).
It’s also helpful to note that there’s an additional limit if you’re paying into a lifetime ISA. In this case you can only pay into one lifetime ISA over the course of a tax year, with the maximum limit being £4,000. Lifetime ISAs are offered to people aged 18 to 40, and you can pay into the ISA annually until you’re 50. The £4,000 annual limit is part of your overall annual ISA limit, so if you take advantage of a lifetime ISA to pay in £4,000, you’ll only be able to pay a maximum of £16,000 into other ISA products.
ISA overpayment
Paying more than the annual allowance - £20,000 in 2024/2025 - into an ISA is not allowed. If you have only one ISA, the chances are that the ISA provider will have measures in place to stop you from overpaying. However, as you may choose to have multiple ISAs from different providers, overpayments can still happen.
If you notice an accidental overpayment which exceeds your ISA allowance over the course of a tax year, you’ll need to get in touch with your ISA provider, and withdraw the excess amount that you have paid in as soon as possible. Any interest or dividends earned on this excess payment will not be covered by the ISA’s tax wrapper - and so you’ll need to declare it, and may need to pay tax on the amount earned. It’s advisable to call HMRC to talk through what’s happened and get individual advice - although HMRC will contact anyone who has overpaid above the ISA allowance in due course, to reclaim any owed tax.
There's no upper limit to the number of ISAs you can hold, as long as you stick within the annual limits for payments into the accounts. You’ll also be able to look out for flexible ISAs which allow you to withdraw money from the ISA and pay it back in, without penalty as long as the withdrawal and deposit are in the same tax year. This can give some peace of mind as you’ll know you can get your money back if your situation changes, and still benefit from the ISA in the longer run.
Key takeaways: ISA overpayment
You must not pay more into ISAs annually than the limit set by the UK government - £20,000 in 2024/2025. If you accidentally pay in more than this, you’ll need to withdraw the excess as soon as possible, and you may need to pay tax on interest or dividends earned. Get in touch with your ISA provider and HMRC if you discover an overpayment to discuss your best course of action.
Disclaimer
When you invest, your capital is at risk. Terms apply. The tax information provided here is of a general nature, and is not a substitute for specific advice in your own circumstances. Seek guidance if needed.
Charlotte is a Communications Manager at Lightyear. She's been sharing news and insights about the finance industry for over five years. At Lightyear she writes content about: product developments on the platform; data, research and news within the investing space; investing instruments and tools; and how individuals and businesses can grow their wealth.
