Short answer: An ISA (Individual Savings Account) is a UK savings or investment account where you pay no UK tax on the interest, dividends or capital gains earned inside it. In the 2026 to 2027 tax year you can put up to £20,000 in total into ISAs, split however you like across the four types: cash ISA, stocks and shares ISA, innovative finance ISA and Lifetime ISA. Money you have already sheltered stays tax-free year after year. From 6 April 2027 the rules change: savers under 65 will only be able to put £12,000 of that £20,000 into cash ISAs.
This article is for general education only. It is not financial, tax or investment advice. ISA rules and allowances are set by the UK government and can change; check the official sources linked below or speak to a regulated adviser about your own circumstances.
What Is an ISA?
An ISA is not a single product but a tax “wrapper” around cash or investments. Banks, building societies, stockbrokers and investment platforms provide them; HMRC sets the rules.
According to GOV.UK, you do not pay tax on:
- interest on cash held in an ISA; or
- income or capital gains from investments held in an ISA.
If you complete a Self Assessment tax return, you do not need to declare ISA interest, income or gains on it. That simplicity is a big part of the appeal.
If you are reading from the US, the closest comparison is a tax-advantaged account such as a Roth IRA, where qualified growth is tax-free (see our guide to Roth vs traditional IRAs). The big difference: most ISAs let you withdraw at any age without penalty.
Who can open one
You must be 18 or over and either resident in the UK or a member of the armed forces or a Crown servant (or their spouse or civil partner) working abroad. For a Lifetime ISA you must also be under 40. ISAs are individual: you cannot hold one jointly with another person. Children under 18 can have a Junior ISA instead, which has its own limit of £9,000 for 2026 to 2027.
Why the Tax-Free Wrapper Matters
Outside an ISA, savings and investment income in the UK can be taxed once it goes above certain allowances. For 2026 to 2027, GOV.UK lists:
- Personal Savings Allowance on interest: £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and £0 for additional rate taxpayers (GOV.UK: tax on savings interest).
- Dividend allowance: £500 a year, with dividends above it taxed at 10.75%, 35.75% or 39.35% depending on your tax band (GOV.UK: tax on dividends).
- Capital Gains Tax annual exempt amount: £3,000 for individuals (GOV.UK: CGT allowances).
Those allowances are small. A large cash balance can use up £1,000 of interest quickly, and a growing portfolio can produce dividends and gains well beyond £500 and £3,000. Inside an ISA none of that matters, and every year you use your allowance, the tax-free part of your wealth grows.
The Four Types of ISA
1. Cash ISA
A cash ISA works like a normal savings account, with tax-free interest. You can choose easy-access, notice or fixed-rate versions, much as you would with an ordinary savings account (our guide to high-yield savings accounts explains how variable and fixed rates compare). Cash ISAs can hold savings in bank and building society accounts and some National Savings and Investments products.
Deposits with UK-authorised banks, building societies and credit unions are protected by the Financial Services Compensation Scheme (FSCS) up to £120,000 per eligible person, per institution for firms that failed after 30 November 2025, according to the FSCS. That limit covers all your deposits at that institution combined, ISA or not. It is the UK counterpart of US deposit insurance, which we explain in What Is FDIC Insurance?
2. Stocks and shares ISA
A stocks and shares ISA can hold company shares, unit trusts and investment funds, corporate and government bonds, and long-term asset funds. Many beginners use low-cost tracker funds, covered in What Is an Index Fund?
Two points to note:
- Tax-free does not mean risk-free. Investments can go down as well as up, and you may get back less than you put in. The FSCS protects investments only if a regulated firm fails and you have a valid claim, generally up to £85,000 per eligible person, per firm. It does not cover ordinary falls in the market.
- You cannot move existing shares straight in. GOV.UK says you cannot transfer non-ISA shares you already own into an ISA, unless they come from an employee share scheme. Selling and rebuying inside the ISA can trigger Capital Gains Tax.
From 6 April 2026, cryptoasset exchange traded notes cannot be newly held in a stocks and shares ISA; they belong in an innovative finance ISA instead.
3. Innovative finance ISA
An innovative finance ISA holds peer-to-peer loans, crowdfunding debentures and cryptoasset exchange traded notes. These are higher-risk, sometimes hard-to-sell products, and many savers never use one.
4. Lifetime ISA
The Lifetime ISA is designed for a first home or for later life. The key rules on GOV.UK are:
- you must be 18 or over and under 40 to open one;
- you can pay in up to £4,000 a year until you turn 50, and this counts towards your £20,000 overall limit;
- the government adds a 25% bonus, up to £1,000 a year;
- you can hold cash, stocks and shares, or both.
You can withdraw without a charge to buy your first home, from age 60, or if you are terminally ill with less than 12 months to live. For a home purchase, the property must cost £450,000 or less, you must buy at least 12 months after your first payment, you must use a conveyancer or solicitor, and you must be buying with a mortgage.
Any other withdrawal triggers a 25% charge on the amount you take out. That claws back the bonus and then some. GOV.UK’s own example: £800 of savings plus a £200 bonus makes £1,000; withdrawing it all costs £250, leaving £750, less than you paid in. Only use one if you are fairly sure of a permitted use.
How the £20,000 ISA Allowance Works
The UK tax year runs from 6 April to 5 April. Each tax year you can pay in up to £20,000 in total, either into one ISA or spread across several. You can also open more than one ISA of the same type in a year, but you can only pay into one Lifetime ISA per tax year. GOV.UK gives examples like these for a single year:
- £15,000 in a cash ISA, £2,000 in a stocks and shares ISA and £3,000 in an innovative finance ISA; or
- £10,000 in one cash ISA, £3,000 in another cash ISA and £7,000 in a stocks and shares ISA.
Three practical rules follow:
- Use it or lose it. Unused allowance does not roll over. On 6 April a fresh £20,000 begins, and last year’s gap is gone.
- Your ISAs do not close at year end. Money from earlier years stays tax-free for as long as it remains inside an ISA.
- Withdrawals usually cost you allowance, unless the ISA is “flexible”. With a flexible ISA, you can take cash out and put it back in the same tax year without using up extra allowance. With a non-flexible ISA, money you put back counts as a new subscription. Your provider can tell you which kind you have.
Transferring rather than withdrawing
To switch to a better rate or cheaper platform, ask the new provider for its ISA transfer form. If you withdraw the money yourself, it loses its ISA status. GOV.UK says transfers should take no longer than 15 working days between cash ISAs and 30 calendar days for other types. Late transfers can be escalated to the Financial Ombudsman Service.
What Changes From April 2027
At the Autumn Budget 2025 the government announced an ISA reform, and the regulations were laid before Parliament on 14 September 2026. From 6 April 2027, according to HMRC’s policy paper:
- the overall ISA allowance stays at £20,000;
- savers under 65 can put no more than £12,000 of it into cash ISAs. The rest can go into stocks and shares or innovative finance ISAs;
- savers aged 65 or over keep a £20,000 cash ISA limit;
- under-65s will not be able to transfer from a stocks and shares or innovative finance ISA into a cash ISA;
- a flat 22% charge will apply to interest paid on cash held inside stocks and shares and innovative finance ISAs;
- a stocks and shares ISA will not be allowed to consist entirely of money market funds (this restriction will not apply to Junior ISAs).
The government’s factsheet explains these anti-avoidance rules. For the current 2026 to 2027 tax year, which ends on 5 April 2027, the existing rules still apply: you can put the full £20,000 into cash ISAs if you want.
Moving Abroad, US Citizens and Inheritance
- If you leave the UK: you must tell your provider when you stop being UK resident. You can keep the ISA and its UK tax benefits, but you cannot pay new money in until you are resident again.
- US citizens in the UK: the US generally taxes its citizens on worldwide income wherever they live (see the IRS guidance for citizens abroad). The ISA’s UK tax exemption does not automatically carry over to your US return, so take cross-border tax advice before you open one.
- On death: an ISA can stay tax-free until the estate is settled, for up to 3 years and 1 day, but its value counts towards the estate for Inheritance Tax. A surviving spouse or civil partner can usually get an extra ISA allowance equal to the value of the ISA.
Is an ISA Right for You?
For many UK savers an ISA is a sensible default home for savings and long-term investments, because the tax shelter costs nothing extra. But if your interest stays well within your Personal Savings Allowance, a cash ISA may offer no tax advantage over a higher-paying ordinary account, so compare actual rates. Keep an accessible emergency fund before locking money away, check platform fees, and if you are an employee, compare ISAs with your workplace pension, which may come with employer contributions.
Frequently Asked Questions
What is the ISA allowance for 2026 to 2027?
£20,000 across all your ISAs, of which up to £4,000 can go into a Lifetime ISA. The Junior ISA limit is a separate £9,000 per child.
Can I have more than one ISA?
Yes. You can hold and pay into several ISAs, including more than one of the same type, as long as your total payments stay within £20,000 a year. The exception is the Lifetime ISA: you can only pay into one per tax year.
Can I lose money in an ISA?
Cash ISA deposits are FSCS-protected up to £120,000 per person, per institution. In a stocks and shares or innovative finance ISA, the value can fall and you can get back less than you invested.
What happens to my cash ISA in April 2027?
Money already in your cash ISAs stays tax-free. The change limits how much new money under-65s can pay into cash ISAs each year (£12,000 from 6 April 2027), within the unchanged £20,000 overall allowance.
Figures in this article were checked against GOV.UK, HMRC and FSCS on 22 October 2026. Always confirm the current rules with your provider or the official sources before acting.
