The ISA allowance explained

The basics

An ISA is a wrapper rather than an investment. What goes inside it can be cash, or shares and funds, and the tax treatment is the same either way: no income tax on interest or dividends, and no capital gains tax on growth. You do not declare ISAs on a tax return. However, ISA investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.

The allowance is £20,000 for 2026/27, across every ISA you hold rather than each one. The Junior ISA allowance is £9,000 per child and sits outside your own.

One change is already announced. From 6 April 2027 the amount that can go into a cash ISA falls to £12,000 for anyone under 65, while those aged 65 and over keep the full £20,000. The overall £20,000 allowance is unchanged either way, so the effect is to push more of it towards stocks and shares.

Use it or lose it

The allowance runs with the tax year, ending on 5 April, and it does not carry forward. If you do not use it, it disappears. This is the most important practical point on this page and the reason ISA contributions cluster in the last weeks of March.

Contributing earlier in the year rather than at the deadline gives the money longer to grow, which over many years is not a trivial difference.

The main types

• Cash ISA. Interest without tax. Suitable for money you may need in the next few years.
• Stocks and shares ISA. Investments without tax on dividends or gains. For money you can leave alone for the longer term, accepting that the value will move around.
• Lifetime ISA. Can be used towards a first home purchase, or accessed from age 60. You will incur a Lifetime ISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60, and you may therefore get back less than you paid into a Lifetime ISA. By saving in a Lifetime ISA instead of enrolling in, or contributing to, an auto-enrolment pension scheme, occupational pension scheme or personal pension scheme: you may lose the benefit of contributions from your employer (if any) to that scheme; and your current and future entitlement to means-tested benefits (if any) may be affected.
• Junior ISA. For a child, with its own separate allowance. The money becomes theirs and accessible at 18, which is worth thinking about before you fund it heavily.

Where people go wrong

• Everything in cash, for decades. Cash is right for short-term money and poor for long-term money, because inflation erodes it. A large cash ISA held for twenty years has usually lost real value.
• Withdrawing without checking flexibility. Some ISAs are flexible, meaning you can withdraw and replace within the same tax year without using more allowance. Many are not. Withdrawing from a non-flexible ISA permanently uses up that part of your allowance.
• Transferring by withdrawing. Always transfer between providers using the formal ISA transfer process. Taking the money out and paying it in elsewhere counts as a fresh subscription and wastes allowance.
• Ignoring the pension comparison. Pensions get tax relief on the way in and are taxed on the way out. ISAs are the reverse. For a higher-rate taxpayer, pension contributions are often the better first call, with ISAs for accessibility. The right split depends on when you need the money.

ISAs and inheritance tax

A common misunderstanding: ISAs are tax-free during your lifetime but they are part of your estate for inheritance tax. They are not sheltered from it.

There is a specific provision letting a surviving spouse or civil partner inherit an additional allowance equivalent to the deceased's ISA holdings, so the tax-free status can effectively continue for them. That is worth knowing about because it is easy to miss and has to be claimed.

This page is general information about the rules and does not constitute advice.

Last reviewed: 17 September 2026. Next review: Annually, at the start of each tax year.