ISA allowance: Use it or lose it

Use it or lose it – one in five savers think their ISA allowance can be rolled over to the next tax year

• 19% of savers believe they can roll over unused allowance
• 16% believe they can backdate ISA contributions
• 13% try and hit the max ISA allowance as early in the tax year as possible

 
Savers could be in for a surprise this April as almost a fifth (19%) think they can roll over their ISA allowance to the next tax year, according to new research from Shawbrook. However this is incorrect as an individual’s ISA allowance resets annually on April 6^th, and any unused portion from the previous year is lost.

The research also found nearly one in five savers are confused and unaware of the legalities of having an ISA account with 16% of savers incorrectly thinking they can backdate their ISA allowance to cover previous years. However, contributions can only be made within the current tax year and backdating contributions to cover previous years is not possible.

13% of savers try to contribute the maximum allowance early and while contributing early is not necessarily an issue, the research findings suggest that some savers aren’t aware that the allowance applies to the entire tax year and contributions can be made at any point.

The data also reveals that despite interest earned on ISA accounts being tax-free, only a third (34%) of savers say they actively strive to utilise the full ISA savings allowance every tax year. Whilst almost two in five (39%) admit they make an effort to use a portion of the ISA savings allowance, but not the full amount.

Positively, nearly a quarter (23%) say they save as much as they can, as often as they can, with a further 19% saving a regular amount monthly but not topping up any extra. 17% confirm they save a regular amount and top it up with a lump sum when or if they can.

Adam Thrower, Head of Savings at Shawbrook comments: “It’s use it or lose it with ISAs and savers should be mindful of the annual ISA allowance reset. It’s crucial to understand you can’t carry over unused contributions. With rising interest rates, even basic rate tax payers risk exceeding the Personal Savings Allowance, highlighting the importance of ISAs. If you haven’t yet used up this current year’s ISA limit now is the time to review your contributions and consider topping up before April 6th.”

 
Shawbrook’s Top 5 Tips For ISA Admin. 
 

1. Understand the “Use it or Lose it” rule: Unlike some accounts, your annual ISA allowance resets to £20,000 each April 6th. Any unused portion from the previous year cannot be carried forward, so make sure to utilise it before the deadline!
2. Rising interest rates + Personal Savings Allowance (PSA) freeze = ISA advantage: With interest rates rising, even basic-rate taxpayers might exceed the PSA, meaning they’d be taxed on their savings. ISAs offer a haven, letting your money grow tax-free on interest earned.
3. Review and top up before April 6th: As the tax year nears its end, check your ISA contributions. If you haven’t reached your £20,000 limit, consider contributing the remaining amount to benefit from tax-free growth.
4. Don’t lose your allowance with withdrawals: Withdrawing money from your ISA and redepositing it counts as a new contribution, eating into your current year’s allowance. Instead, you must use providers’ ISA transfer services to seamlessly switch providers without impacting your allowance.
5. Compare fixed-rate ISAs before they mature: For fixed-rate ISAs nearing maturity, compare current market rates before renewing. This ensures you’re getting the best possible return on your investment.

 
The research was conducted by Censuswide with 2,326 UK consumers (18+) – with at least 1,500 who are ‘active savers’ (contribute to a savings account monthly – natural fallout of amount saved) between 26/01/24-31/01/24. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles and are members of The British Polling Council.