An Individual Savings Account (ISA) lets you save or invest without paying UK tax on the interest, dividends or gains. For 2026/27 you can put up to £20,000 into ISAs in total, split across cash, stocks and shares, innovative finance and Lifetime ISAs as you choose. The allowance runs from 6 April to 5 April, it does not roll over, and anything you do not use by 5 April is lost.
Note: this is general information, not financial or investment advice. ISA rules, limits and the tax treatment of your savings can change, and the effect depends on your circumstances. Check GOV.UK and the provider’s terms before you act. Investments can fall as well as rise.
What an ISA is and why people use one
An ISA is not a product in itself but a tax wrapper. You choose a type, such as a cash savings account or an investment fund, and hold it inside the ISA, and the UK tax that would normally apply to the growth does not apply. You do not need to list ISA income or gains on a tax return, which also means less paperwork.
The wrapper matters most when your savings and investments would otherwise run into a tax limit. Without an ISA you pay tax on savings interest above your personal savings allowance (£1,000 for a basic-rate taxpayer, £500 for a higher-rate taxpayer and nothing for an additional-rate taxpayer), tax on dividends above a £500 dividend allowance, and capital gains tax on gains above a £3,000 annual exempt amount. Inside an ISA, none of these apply. For a small saver with a modest pot, the benefit today may be zero. For anyone building a large pot over many years, the wrapper can save a lot, and the allowance can only be used year by year, which is why starting early matters.
An ISA is also flexible. Cash can be held in easy-access or fixed-term accounts, and money can be invested in shares, funds, bonds or other eligible assets. You must be a UK resident aged 18 or over to open a cash ISA (some types have different age rules), and an ISA cannot be held jointly with someone else, so each person in a couple has their own allowance.
The 2026/27 ISA allowance
The overall limit for 2026/27 is £20,000 per person. That is a limit on what you pay in during the tax year, not on how much the account can grow to, and it applies across all your ISAs. You can put the full amount in one ISA or divide it between several. In many cases you can pay into more than one of the same type in a single year, if your providers allow it. Check the rules for your accounts.
Some points that surprise people:
- The limit is on contributions, not the balance. If you pay in £20,000 and it grows to £25,000, you have still only used £20,000 of the allowance.
- Withdrawals can use up the allowance. Unless the provider offers a flexible ISA, taking money out and putting it back counts as a new contribution. A flexible ISA lets you replace money you took out in the same tax year without using more allowance, but only if the provider offers that feature and you follow its rules.
- Transfers do not use the allowance. Moving an existing ISA to a new provider is a transfer, not a new payment, so the money keeps its tax-free status. You must use the provider’s transfer process rather than withdrawing the money yourself, otherwise the tax wrapper is lost.
- Unused allowance disappears. The tax year ends on 5 April, so a £10,000 shortfall in 2026/27 cannot be added to the next year.
- Tax-year timing creates two chances. If you have the money, you can use the allowance in the last weeks of one tax year and again just after 6 April.
For a couple, the household allowance is £40,000 a year, since each person has their own £20,000. A gift between spouses or civil partners, which is generally free of tax, can let one person fund the other’s ISA, subject to your circumstances.
The four types of ISA
There are four categories of adult ISA in the UK, plus the Junior ISA for children. The allowance is shared, so the choice is about where to put the money, not how much you can use.
| Type | What it holds | Best suited to | Main points |
|---|---|---|---|
| Cash ISA | Savings accounts | Money you will need in the short or medium term, or those who do not want investment risk | Interest is tax free, rates vary, and protection depends on the provider’s compensation scheme |
| Stocks and shares ISA | Funds, shares, bonds and other investments | Long-term goals, usually five years or more | Value can rise or fall, and you may get back less than you put in |
| Innovative finance ISA | Peer-to-peer loans and similar | Experienced investors who understand the risks | Higher risk, and compensation scheme protection may not apply |
| Lifetime ISA | Cash or investments | First home or later life, ages 18 to 39 to open | 25% government bonus on up to £4,000 a year, with charges for early withdrawal |
Within a stocks and shares ISA, the underlying investments are the same as outside it, so a fund that carries a risk of loss inside the ISA carries the same risk when held outside. The wrapper removes the tax, not the risk.
Many people hold a mix: a cash ISA for the emergency fund and short-term goals, and a stocks and shares ISA for retirement or long-term growth. The best split depends on your timeline and your tolerance for losing money in the short term.
The cash ISA change from April 2027
An important change was announced at the Autumn Budget 2025: from 6 April 2027, the cash ISA limit is due to fall to £12,000 for savers under 65, while the overall allowance stays at £20,000, and savers aged 65 and over keep the full £20,000 in cash. If you have more than £12,000 to save from April 2027 and you are under 65, the remainder would need to go into a stocks and shares ISA or another type. The detail comes from secondary sources and the announcement, so check GOV.UK for the final rules before making plans around it.
For the current tax year, 2026/27, the full £20,000 can still go into a cash ISA. If you want to fill a cash ISA with a larger amount, it is worth knowing about the change before the end of the year, because it affects how much you can put in cash in later years.
Lifetime ISAs and Junior ISAs
The Lifetime ISA (LISA) is designed for buying a first home or saving for later life. You must make your first payment before you turn 40, and you can pay in until you are 50. You can put up to £4,000 a year in, and the government adds a 25% bonus, up to £1,000 a year. The LISA counts towards the £20,000 overall limit, so putting the maximum in a LISA leaves £16,000 for other ISAs. Withdrawals for anything other than a first home, or after age 60, can trigger a charge that costs you more than the bonus, so it is not suited to money you may need. The property price cap and the time the account must be open for first-home use are set by the rules, so check GOV.UK, and see our guide on How to save a mortgage deposit faster for how a LISA fits a deposit plan.
A Junior ISA is for children under 18. A parent or guardian opens it and anyone can pay in, but the money belongs to the child, who gets control at 18. The annual limit is separate from the adult allowance, and a secondary source puts it at £9,000 for 2026/27, so check GOV.UK for the current figure. The child cannot withdraw the money before 18 except in limited cases.
How much tax does an ISA save? Worked examples
The figures below are illustrations built from the tax rules for 2026/27. They are not a tax calculation for your own affairs.
Savings interest. Suppose you hold £60,000 in cash savings at 4%, earning £2,400 of interest a year.
- A basic-rate taxpayer has a £1,000 personal savings allowance, so £1,400 is taxable at 20%, which is £280 of tax a year.
- A higher-rate taxpayer has a £500 allowance, so £1,900 is taxable at 40%, which is £760 of tax a year.
- Inside an ISA, the tax is zero in both cases.
There is also a starting rate for savings of up to £5,000 that can reduce the tax for people with low other income, so check the rules if your income is modest.
Dividends. Suppose you hold investments that pay £10,000 of dividends in a year. The dividend allowance is £500, and the rates for 2026/27 are 10.75% for basic-rate and 35.75% for higher-rate taxpayers.
- A basic-rate taxpayer pays 10.75% on £9,500, which is £1,021.25.
- A higher-rate taxpayer pays 35.75% on £9,500, which is £3,396.25.
- Inside a stocks and shares ISA, the dividend tax is zero. Dividend tax explained: rates, allowance and a worked example sets out how the rates work.
Capital gains. Suppose you sell investments for a gain of £8,000. After the £3,000 annual exempt amount, £5,000 is taxable. A higher-rate taxpayer pays 24% (£1,200), and a basic-rate taxpayer pays 18% on the part within their basic-rate band. Inside an ISA, there is no capital gains tax at all. See Capital gains tax explained: rates, allowance and how to work it out for how the rate is chosen.
The longer you hold and the more the pot grows, the more these tax lines matter. A typical person with a few thousand pounds may never pay tax on it. A person with a six-figure portfolio probably will.
The long-term effect of a tax-free wrapper
The tax saving is only part of the story. Because you can shelter new money every year, a regular ISA habit builds a pot whose growth is never taxed. Using the compound interest engine:
- £20,000 left to grow at 4% a year for ten years becomes about £29,605, an increase of £9,605. Outside an ISA, a higher-rate taxpayer with other savings would owe tax on much of that interest.
- Saving £500 a month for 20 years at an assumed 5% return, with monthly compounding, gives about £205,517, of which £120,000 is money paid in and £85,517 is growth.
These are illustrations with a constant rate, and real returns, particularly from investments, vary from year to year. They show how the pot grows with time. For the underlying formula, see Compound interest explained, with examples. The shorter your timeline, the less growth you will see and the less the wrapper is worth, so the simple tests are how long you can leave the money and how much of it would otherwise be taxed.
Common ISA mistakes to avoid
- Missing the 5 April deadline. The allowance resets and cannot be carried forward, so check before the end of the tax year.
- Withdrawing instead of transferring. Taking money out of an ISA to move it loses the wrapper. Use the provider’s transfer form.
- Exceeding the £20,000 limit. Paying into several ISAs and going over the total can lead to HMRC unwinding the excess. Keep a record of your contributions.
- Holding cash in a stocks and shares ISA for years. Cash waiting to be invested may earn little. Check the provider’s rate and fees.
- Using a LISA for money you may need early. The withdrawal charge can wipe out the bonus and more.
- Ignoring the platform fees. An investment ISA can have platform, fund and trading charges that reduce growth, which matters more over decades.
- Forgetting the age limits. Cash ISA rules are changing for under-65s from April 2027, and the LISA has an age limit for opening.
Try the calculator
See how a lump sum and regular monthly payments grow with the Compound Interest Calculator, then use the Savings Goal Calculator to work out how long a target takes or what to pay in each month.
Frequently asked questions
How much can I put in an ISA in 2026/27?
You can put up to £20,000 into ISAs in total during the 2026/27 tax year, which ends on 5 April 2027. You can spread it across cash, stocks and shares, innovative finance and Lifetime ISAs.
Can I have more than one ISA?
Yes. You can hold several ISAs and, depending on the providers, pay into more than one of the same type in a year, provided the total you pay in does not exceed £20,000. A joint ISA is not allowed, so each person has their own.
Do I need to declare an ISA on my tax return?
No. Interest, dividends and gains inside an ISA are free of UK tax and do not need to be reported on a tax return.
What happens to my ISA allowance if I do not use it?
It is lost at the end of the tax year. You cannot carry unused allowance into the next year, so a smaller regular payment through the year is often better than missing out.
Is a cash ISA better than a savings account?
It depends on the rate, access and how much interest you would otherwise earn. If your interest is within your personal savings allowance, an ordinary account paying a higher rate can be better today, but an ISA protects you if your balance or rates grow. Compare after-tax returns.