The current tax year draws to a close tonight, Wednesday 5 April which means there are just a few hours left to use up your ISA allowance before it’s gone for good.

The Individual Savings Account (ISA) provides a tax-free wrapper for your money which means the taxman can’t get his hands on any interest, income or capital gains you make.

But with the broad choice of ISAs, such as cash, stocks and shares as well as special schemes for homebuyers and pension savers, knowing the rules – and avoiding blunders – can prove difficult.

Below, we take a look at six ISA mistakes to avoid, plus what to do if you do fall foul of the rules:

1) I’ve paid into two stocks and shares ISAs or two cash ISAs

The rules allow you to pay into one of each type of ISA each tax year so you can pay money into both a cash ISA and a stocks and shares ISA, but not two standard cash ISAs or S&S ISAs.

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Laura Suter, head of personal finance at AJ Bell, says: “It’s tricky though, as you’re allowed to have more than one of each type of ISA open, you just can’t pay into two in the same tax year.”

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says this mistake can happen, especially if you forget about a regular ISA payment then make a lump sum payment into another ISA.

She says: “If you make this mistake, contact HMRC on the ISA helpline [0300 200 3300] and they will tell the manager of the ISA you paid into second in the tax year to refund your payment(s). You will have to pay any tax on interest, income or growth – unless it falls within your other allowances.

“If you’re absolutely certain which payment broke the rules, you can withdraw it. HMRC will still get in touch, so you need to keep the paperwork that shows you realised what happened and took the money out. If you don’t notice, rest assured HMRC will.”

2) I’ve gone above the £20,000 annual limit

The current annual limit is £20,000 but savings in a Lifetime ISA (maximum £4,000) also counts as part of this allowance. The Help to Buy ISA also has a £200 per month limit, again which counts towards the £20,000 limit.

“If you have different ISAs with different providers, it can be easy to accidentally pay in too much,” Suter says.

“If you realise you’ve done this then you shouldn’t attempt to just withdraw money from one ISA yourself. Instead you should call HMRC’s ISA helpline on 0300 200 3300 to explain the situation. HMRC will work out which ISA had the payment into it that breached the limit and will reclaim the money. They will also charge you for any tax owed.”

Coles adds that the sharing of the Lifetime ISA and ISA allowance is the single biggest cause of confusion among people considering a LISA, and creates “administrative complexity for savers and providers”. Separating the two allowances would easily solve this, she says.

3) I’ve locked my ISA money away, but I need the money now

While stocks and shares ISAs are designed for the long term, money isn’t locked away so investors can access cash when needed.

But money deposited with peer-to-peer lenders or money tied in fixed rate cash ISAs may leave savers either unable to access cash or you could be penalised for withdrawals.

Coles says: “With peer-to-peer, any money that hasn’t been loaned out can be returned, but you may have to wait until the loans can be sold onto someone else, and the time this takes will depend on the market. With a fixed rate ISA, it will depend on the small print. Most will let you withdraw early, but you will pay an early access charge.”

For those who have only just saved money into an ISA, check to see if you’re still within the cooling off period, which usually lasts for 14 days.

“If you are then you can close the account and get your money back without penalty,” Suter says.

She adds: “If you opened the account longer ago you’ll need to check with your provider. Some might allow you to withdraw the money in return for getting no interest or reduced interest on the account. If that’s the case you’ll need to weigh up the pros and cons of taking the cash out and getting the reduced interest. However, other accounts will have stricter rules and won’t let you access the account under any circumstances.”

4) I’ve been hit with a 25% penalty on my Lifetime ISA

The Lifetime ISA lets you save up to £4,000 each tax year for a first house and/or retirement and you’ll receive a Government bonus of 25% (maximum £1,000 a year). The money can be used for a first home or withdrawn at the age of 60 but for any other reason, savers will be hit with a 25% penalty which applies to the whole amount.

Coles explains: “While it may look like you are just giving up the Government bonus (25%) it’s more complicated than that, because it also takes a chunk of the money you have invested (£6.25 of every £100). If you put £4,000 into your LISA, you would receive the 25% Government top-up, which brings the sum of your LISA up to £5,000. If you then withdraw that £5,000 you will pay 25% on that, which comes to £1,250, so you are eating into your savings.”

A total of £33m was paid in early access charges in 2021/22, with £34m clawed back in 2020/21.

“Unfortunately, if you’ve withdrawn the money and paid the exit penalty there is no going back. Even if you pay that same money back into your ISA you can’t reclaim that exit fee”, Suter warns.

5) I’ve paid into a Help to Buy ISA and my other cash ISA

This type of ISA is now closed to new entrants but if you have one already, you can continue contributing to it until November 2029. It’s a type of cash ISA designed to help first-time buyers onto the property ladder. You can pay up to £200 a month in and can withdraw the money at any time, without penalty. The Government will top up anything you save with a 25% bonus. But you can’t usually pay into a Help to Buy ISA in the same year you pay into any other cash ISA as they’re both treated as cash ISAs, and as above, you can’t generally pay into two cash ISAs, unless the provider offers a ‘portfolio ISA’.

Portfolio ISAs allow you to split your ISA allowance between multiple ISA products with the same provider. This is great for savers with a H2B ISA who would otherwise be restricted to contributing a maximum of £2,400 a year, forfeiting the chance of depositing the maximum £20,000 in a cash ISA. However, there are very few providers who offer a portfolio ISA.

Coles says: “A few providers have both in the same wrapper, but in most cases you can’t have a H2B ISA and a cash ISA in the same tax year. As with any other accidental breach of the rules, the same rules as above apply.”

6) I cashed in my ISA instead of making a transfer

If you want to switch ISAs, it’s really important to do the transfer according to the rules.

Suter explains that when you’re moving your money from one ISA to another, make sure to transfer it, rather than close the account and then pay the money into a new one.

“That’s because with many accounts you’ll end up eating into your annual ISA allowance unnecessarily. If you close the account and then pay money into your new ISA as a new contribution, they will lose their tax-free status and will count towards your £20,000 annual ISA allowance, whereas if you transfer the money, it won’t,” she says.

However, she adds this is only a problem for those with a large ISA which will either meet or exceed the annual ISA limit.

“If your ISA is worth £5,000 and you wanted to pay in another £1,000 this year then you wouldn’t reach your annual limit even if you didn’t transfer the money. However, if your ISA is worth £20,000 and you wanted to pay in another £5,000 this tax year, you’d breach your annual allowance,” she explains.

The first thing to check is whether the receiving ISA provider allows ISA transfers as not all do. The other point to check is if the old provider offered a ‘flexible’ ISA. If it did, then you can take money out and as long as you put it back in the same tax year, it won’t count towards your allowance.

Suter gives this example: “If your ISA is flexible and you have £15,000 in your ISA and you withdraw £5,000, you can pay in £10,000 before the tax-year-end – the £5,000 you withdrew and the extra £5,000 to take you up to the £20,000 limit. But if the account isn’t flexible or if you’ve already withdrawn all the money and closed the account, there isn’t a way to rectify the problem.”

Related: Everything you wanted to know about ISAs…but were afraid to ask