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I get that, in each tax year, you can pay-in up to your ISA limit (at the moment £20000) into any number of - or create new - ISA accounts, so long as it's only one of each type. So you can create a Cash ISA and a Stocks & Shares ISA, and pay into a Lifetime ISA all in the same year, as long as the total contribution does not exceed £20000. What I'd like to understand is, what's the rational behind only allowing contributions for one of each type per tax year?

As an example, say I hold two Stocks & Shares ISAs. One is managed by me, and I decide what stocks go in, and the other is managed by a bank (i.e. a Managed Fund). Even if I were to stay within the limit, I can't put money into both in the same year, even though that obviously has benefits wrt to risk management.

I really can't think of a reason why this restriction is in place, and it would make more sense if the restriction was only paying into one of any type during one year. Can anyone explain why this is the way it is?

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  • These rules were thought up by politicians. "Making sense" rarely seems to be high on their list of priorities.
    – timday
    Dec 24, 2020 at 10:10
  • Bear in mind that cash and stocks-and-shares ISAs used to be even more separate than they are currently, but the concepts were somewhat - but not fully - merged in 2014: whatinvestment.co.uk/…
    – timday
    Dec 24, 2020 at 10:17
  • " say I hold two Stocks & Shares ISAs. One is managed by me, and I decide what stocks go in, and the other is managed by a bank (i.e. a Managed Fund). " seems to be not right - a S&S ISA is an envelope that the holder puts money into, and what happens to the money within is always entirely up to the holder. Whether the money is used to buy individual stocks, or a managed fund, either way it's the holder that decides. You can't just instruct a bank to run your S&S ISA for you.
    – AakashM
    Feb 10, 2021 at 21:33
  • @AakashM Yeah, I know. I just was illustrating two different ways you might want to use a S&S ISA, one where you manage the investment yourself and one where the specifics of the investment is managed by the bank/fund
    – J_mie6
    Feb 13, 2021 at 9:56

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I'm speculating, but I suspect this is intended to ease administration for HMRC and the banks (etc) holding the ISAs.

The main fore-runner of the ISA was the TESSA, which had a very simple requirement: everybody over 18 was entitled to a single TESSA. To open an account, they would supply their National Insurance number, which could easily be checked against a central list to see if they already had a TESSA open. The bank holding that TESSA could then directly check if you were within the deposit limits.

When ISAs replaced TESSAs and PEPs in 1999, things got a bit more complicated: there was a limit of "subscribing to" one Cash ISA and one Stocks and Shares ISA per year, which could be checked easily, but as you point out the deposit allowance could be shared between those two ISAs. This presumably requires more co-ordination, updating HMRC with your total balance to make sure it doesn't exceed the limit.

If you could "subscribe to" any number of accounts, this co-ordination would increase: you could set direct debits paying £100 per week into 20 accounts, and after 10 weeks, they would all need to be notified by HMRC to refuse further deposits because you'd used your allowance - but only once HMRC had received all the reports of what you had deposited and added them up.

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