ISAs

An ISA is a tax-free savings account. When your money is inside an ISA you do not need to pay Capital Gains tax on investment growth, and you also don’t need to pay income tax on interest, dividends, or when you withdraw the money.

Overview

There are multiple different types of ISAs available. The most relevant ones are usually:

Stocks & Shares ISAs (for investments)
Cash ISAs (like bank savings accounts)
Lifetime ISAs (for first time homebuyers and/or retirement savings – these can be Cash or Stocks & Shares)

Because ISAs offer significant tax perks, there are some limits on how much you can put in them.

You can put up to £20,000 each tax year into your ISAs – this is known as your ‘ISA allowance’. The tax year runs from 6 April to 5 April.
Your allowance is shared across all your ISAs. Whether you have one ISA or five, you can contribute a maximum of £20,000 between them.
Your allowance resets every year. It is use it or lose it. If you have some allowance left in a year, you cannot carry it over to the next.
Only new contributions count towards your allowance. Growth, dividends, interest, and government LISA bonuses within the ISA do not use up your allowance. Buying and selling investments within your ISA does not use any allowance.
Transfers between ISAs do not use up your allowance.
You can keep the same ISA open and contribute to it for multiple tax years.

Putting money into an ISA, from anywhere other than an ISA, is known as ‘contributing’ or ‘subscribing’ to an ISA.

ISA types explained

Stocks & Shares (S&S) ISA 📈

When you invest within a S&S ISA, any capital gains from these investments will be free of Capital Gains Tax, and any income payments or dividends will be free of income tax.

This makes S&S ISA the starting point for investing in the UK. It only makes sense to invest in a General (taxable) Investment Account if you have already filled your ISA for the year.

See further information on: Investing 101, index funds, and choosing a broker to open an account with.

My portfolio is too small to pay Capital Gains Tax – should I still use an ISA?

In short: yes.

There’s no advantage to using a General Investment Account. It’s not usually any cheaper than an ISA.
Your portfolio will grow over time and may become subject to capital gains tax in the future.
ISA allowances are use it or lose it.
If you have a taxable account it’s your responsibility to maintain comprehensive records, calculate your own tax liability, keep track of tax law changes, etc. All this hassle is avoided inside an ISA.

Use GIAs as overflow if you run out of ISA allowance.

Cash ISA 💷

Cash ISAs work like any savings account, with the advantage that all interest earned is tax-free. This can work out better than a higher rate that is taxed. See our savings page for more information on tax on interest.

Cash ISAs can be ‘easy access’, meaning there’s no penalty to withdraw your money at any time, or they may be ‘fixed rate’, where your money is locked away at a fixed interest rate for some period of time and you’ll pay a penalty to withdraw it early.

When a Fixed Term ISA reaches maturity, it typically reverts to an easy access ISA (often with a poor interest rate). You would generally want to transfer it to a new account with a competitive interest rate. Set a calendar reminder, and make sure to use the ISA transfer process – do not withdraw the money into your bank account (unless you want to spend it!).

Lifetime ISA (LISA) and Help to Buy ISA (H2B ISA) 🏠

Lifetime ISAs are designed to help first time buyers saving up for a deposit. Both Cash and S&S LISAs are available. You can put up to £4,000 into a LISA per year, and receive a “bonus” of 25% of your contribution. So if you contribute £4,000, you will receive a £1,000 bonus taking your account to £5,000. They can also be used to save for retirement, although a pension is often more cost effective.

Help to Buy ISAs are the scheme which preceded LISA. You can no longer open new H2B ISAs, but some savers may still hold them.

Innovative Finance ISA (IFISA) 🤝

This is an ISA specifically intended for peer-to-peer (P2P) lending. P2P lending proceeds are currently taxed as income, but P2P lending is often criticised for having an unsatisfactory risk-adjusted return and poor liquidity.

Despite lending platforms advertising enticing interest rates, these are a best-case scenario before losses and as such these products should never be treated like a cash savings account – only invest money you can afford to lose.

Junior ISA (JISA) 🧒

A Junior ISA can be opened for anybody under age 18 by a parent or guardian. It can either be Cash or Stocks & Shares, and replaced ‘Child Trust Funds’. The annual JISA contribution limit is £9,000 as of April 2024.

Contributions and transfers

Contributions 💳

There is an overall contribution limit of £20,000 per tax year. For example, you can save £16,000 in a stocks and shares ISA and £4,000 in a Cash LISA (picking up an additional £1,000 bonus) for a total of £20,000 in that tax year.

What happens when a new tax year starts?

Your ISAs won’t close when the tax year finishes. You can keep contributing to your existing ISAs across multiple tax years. You’ll keep your savings on a tax-free basis for as long as you keep the money in your ISA accounts.

Transferring an existing ISA 🚚

Transfers between ISAs do not count as new contributions and do not use up your allowance. You can transfer to a brand new ISA, or one which is already open, and transfer all or part of the savings from one provider to another.

To count as a transfer you must follow the proper process – contacting the new provider and asking them to transfer in the other ISA. Withdrawing from one ISA into your bank account and contributing to another does not count as a transfer – it will use the current year’s allowance.

ISA transfers are not instant. Cash transfers are typically completed in 15 working days, S&S within 30 working days. During this time your account access might be restricted.

If transferring a S&S ISA or LISA, you can choose to do so either:

in-specie: your investments are transferred directly to the new provider (assuming they are available on both platforms) – you stay invested throughout the transfer process.
as cash: your investments are sold, the cash is transferred to the new ISA and you can then re-invest it – you spend some time out of the market.

You can transfer between different types of ISA:

ISA type	Contribution limit (2025/26)	Can transfer to…
Stocks & Shares ISA	£20,000	S&S ISA, Cash ISA, IFISA, LISA (up to £4000)
Cash ISA	£20,000	S&S ISA, Cash ISA, IFISA, LISA (up to £4000)
LISA (cash or S&S)	£4,000 excluding bonus	LISA, S&S ISA (subject to 25% exit charge), Cash ISA (subject to 25% exit charge)
H2B ISA	£1,200 on opening, then £200/month	LISA (up to £4000)
IFISA	£20,000	Cash ISA, S&S ISA, LISA (up to £4000)
Junior ISA (cash or S&S)	£9,000/year until age 18	None. Automatically converts to Cash or S&S ISA on child’s 18th birthday.

Note: if transferring from a “Fixed” cash ISA before the account maturity date, a penalty fee may apply.

ISA Flexibility ↔️

Some providers offer “Flexible ISAs”. The rules allow you to withdraw any amount from a flexible ISA and retain the ISA wrapper as long as it’s put back into the same ISA within the same tax year.

FAQ

Should I use an ISA, LISA or a pension?

See our ISA vs LISA vs pension comparison for more details.

What happens to an ISA if I move to another country?

If you are not UK Tax Resident then you cannot make new contributions to an ISA. You can still keep your ISAs open, transfer between ISAs, and make investment decisions. Note some providers may limit what services they provide to non-residents.

Even if you move abroad, you do not have to pay tax on your ISAs in the UK. However, ISAs may not have any tax protection in other countries and may be considered taxable savings accounts there.

What happens to an ISA on death?

ISA money isn’t free of inheritance tax. On death, the funds are considered part of your estate. If somebody dies leaving a surviving spouse or civil partner, the survivor inherits an “Additional Permitted Subscription” allowance equal to the ISA values held on the date of death. This isn’t quite the same as inheriting ISAs, but it is close.

What happens if I pay in more than £20k in one tax year?

It is your responsibility to ensure you do not exceed the annual allowance. Some ISA providers may display wording like “you have £13,000 of your allowance left” – this is based only on the information they have about your activities with them, with no visibility of contributions you’ve made elsewhere. If you have exceeded the annual allowance, you should ask your ISA provider to “repair” ineligible excess contributions, removing them into a taxable account.