ISA guide: everything you need to know for the 2025/26 tax year
We explain everything you need to know about ISAs: how they work, how much you can pay in, what investments you can hold, and how to transfer one
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Twice daily
MoneyWeek
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Four times a week
Look After My Bills
Sign up to our free money-saving newsletter, filled with the latest news and expert advice to help you find the best tips and deals for managing your bills. Start saving today!
Individual Savings Accounts (ISA) are a tax-efficient way to grow savings and invest in stocks and shares.
Investors and savers can shield money from the taxman with these types of accounts, and their usage is on the rise.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
What are the main types of ISA?
There are four main types of ISA: cash, stocks and shares, innovative finance and lifetime ISAs.
You can open one of these accounts if you’re 18 or older, although you can’t open a lifetime ISA if you’ve turned 40.
Help to Buy ISAs fall under the cash ISA category, but since November 2019, it’s not been possible to open a new account. Anyone who opened an account before this date and still has it open can pay into it until November 2029 and has to claim the bonus by November 2030.
You can also open Junior ISAs (JISA) for children aged under 18.
There are more rules for each type of ISA. We’ve broken them down for each type below.
ISA rules: How ISAs work
One of the main rules that applies to all types of ISAs is the annual allowance. There is a separate annual allowance for the JISA.
You can currently save or invest up to £20,000 across all adult ISAs each tax year.
So, for example, you could save £5,000 into a cash ISA, then put £15,000 into a stocks and shares ISA. The annual allowance is just an upper cap on contributions – you don’t have to max it out every year.
There are also limits within the overall allowance. For example, you can only put up to £4,000 per year into a LISA.
From 6 April 2027, savers under 65 will be limited to putting a maximum of £12,000 into a cash ISA per tax year. This is within the overall £20,000 allowance.
Transfers of funds from stocks and shares ISAs to cash ISAs will also be banned as part of the changes.
Annual ISA allowances don’t roll over from one year to the next – if it goes unused one tax year, you can’t add more than £20,000 the following year.
For that reason, if you’ve not used up all your £20,000 allowance for 2025/26 and have the budget, it may be worth paying as much money into your ISA(s) as possible before the tax year ends on 5 April.
Do note, a Junior ISA has its own allowance of £9,000 per tax year.
How cash ISAs work
A cash ISA is essentially a savings account where you pay in money and earn interest on your savings. The key difference to a traditional savings account is that interest earned on a cash ISA is tax-free. This means regardless of how much interest you earn in an ISA, you won’t pay any tax on it.
This is different to those holding a standard cash savings account, where income tax is owed on any savings interest which exceeds tax-free allowances, such as the personal savings allowance.
There are several different cash ISAs to choose from:
- An easy-access ISA is a useful home for your emergency savings pot, as these allow you to withdraw money when you need it without incurring a penalty – some may limit how many withdrawals you can make before hitting you with a charge.
- Fixed-term ISAs pay an agreed interest rate over a set period of time, typically one to five years, much like a savings bond. They tend to offer higher rates than easy-access ISAs, but in exchange, you have to leave your money untouched or risk paying a penalty.
- Flexible cash ISAs allow you to take money out and replace it during the same tax year, without that amount being deducted from your ISA allowance. For example, you could pay in £20,000, then withdraw £5,000, and a flexible ISA would allow you to pay the £5,000 back in during the same tax year. Not all cash ISAs offer this “flexible” status, so check with the bank or building society, especially if you plan to use the account as an emergency savings pot where you might need to make withdrawals.
You can currently contribute £20,000 to a cash ISA each tax year, but this would leave you with nothing left out of your annual allowance.
Alternatively, you could decide to split the total and contribute £10,000 to a cash ISA, £6,000 to a stocks and shares ISA, and £4,000 to a LISA.
Before 6 April 2024, you could only hold one cash ISA and one stocks and shares ISA per tax year. Now, you can hold multiple ISA accounts, of the same type, within the same year.
In terms of transferring an ISA, you’re free to move a cash ISA to one that pays a better interest rate or one that better suits your needs without affecting this year's allowance – as long as you complete the correct transfer forms.
For your money to retain the all-important tax-free status, contact the ISA provider you want to move to and fill in the transfer form. If you withdraw the money without doing this, you will not be able to reinvest that part of your tax-free allowance again.
Following a rule change in April 2024, ISA savers can now transfer part of their balance from one ISA provider to another, regardless of when the money was paid in.
Under the old rules, customers had to transfer their entire ISA of that type from the current tax year or nothing at all. The change means you can keep some money with your existing provider and retain that ISA.
Cash ISA transfers should take no longer than 15 working days, according to the government. Other types, like stocks and shares ISAs, can take around 30 calendar days. You’re also free to move to a different type of ISA, such as from cash to stocks and shares, or say, from innovative finance to cash.
How stocks and shares ISAs work
Stocks and shares ISAs, also known as investment ISAs, allow savers to invest in a broad range of assets. Any investment gains you make will not be subject to capital gains tax, income tax or dividend tax. The only tax you may have to pay is stamp duty when buying shares.
The best way to think of a stocks and shares ISA is an investment account with a tax wrapper around it. Like a general investment account (GIA), you can buy everything from shares to bonds to property in the form of real estate investment trusts (REITs), plus open-ended funds (Oeics) and exchange-traded funds (ETFs).
You can choose ready-made investment portfolios (think Moneybox, Wealthify and Nutmeg) for your stocks and shares ISA. These are portfolios put together by professionals and are useful if you’re a beginner and looking to take a hands-off approach to investing.
There are also DIY stocks and shares versions (providers include Hargreaves Lansdown, AJ Bell, Charles Stanley Direct and many others), where you can pick your own funds, bonds and shares.
As with any investment account, ensure you check the fees charged by the ISA provider which can chip away at your returns. There could be an annual fee for a stocks and shares ISA, fees to trade investments, and possibly an exit charge.
To move a stocks and shares ISA, ask your new provider for a transfer form.
How Lifetime ISAs work
LISAs are the most generous member of the ISA family, with a government bonus of up to £32,000 on offer, over time. Launched in April 2017, they have the dual aim of helping those under 40 get onto the property ladder or save for retirement.
To open one, you must be aged between 18 and 39. You can contribute up to £4,000 each tax year until you’re 50, and must make your first payment into your account before you’re 40. The money you pay in counts towards your £20,000 ISA limit. You can hold cash or stocks and shares in a Lifetime ISA, or a combination of both.
The best bit about Lifetime ISAs is you get free cash from the government with each deposit. You’ll get a juicy 25% bonus worth up to £1,000 every tax year, depending on your contribution. For example, if you pay £2,000 into your Lifetime ISA this tax year, you’ll receive a £500 top-up.
You can only access the money penalty-free at age 60 or over, or to buy your first property up to the value of £450,000. You can also withdraw your cash if you’re terminally ill and have less than 12 months left to live.
While the government bonus is a great incentive to open a LISA, bear in mind that if you use it for anything other than the three above scenarios, you’ll be hit with a 25% withdrawal charge, which means you could end up with less than you put in.
The government is launching a consultation in 2026 on the rollout of a new “simpler” product to help first-time buyers get a home.
The retirement option on the LISA could be scrapped as part of the consultation, according to reports.
How Junior ISAs work
If you have children or grandchildren aged under 18, you can save into a JISA for them.
These can be cash or the stocks and shares variety. The account has to be opened by a parent or guardian, but once it’s set up, anyone can add money to it up to £9,000 per tax year.
As an example, if you have paid £2,000 paid into your child’s cash JISA on 15 April 2025, only £7,000 could be paid into their stocks and shares JISA in the same tax year.
The £9,000 JISA limit is separate to the £20,000 allowance for adult ISAs.
As with adult ISAs, any investment gains or interest earned within a JISA is totally tax-free.
The child cannot access the money until they turn 18. As soon as they reach their 18th birthday, they can spend it – or save or invest it – as they choose. This means alongside the cash you deposit into their account, try and also deposit good financial habits into their brains by teaching them about money.
If your child has a Child Trust Fund (CTF) – and those born before January 2011 will have one – consider moving it into a Junior ISA. Simply request a transfer form from the Junior ISA provider. Cash Junior ISAs typically have higher interest rates than CTFs, while stocks and shares Junior ISAs generally have lower fees than the CTF versions.
How Innovative Finance ISAs work
Innovative Finance ISAs (IF ISAs) were introduced in 2016 to allow people to invest some or all of their £20,000 annual allowance in peer-to-peer lending and enjoy tax-free returns.
This involves lending your money directly to businesses and individuals without a middleman, such as a bank, in return for interest. Providers include Triodos Bank and EasyMoney.
They are the least popular ISA, and remain a niche product. In 2023/24, just 10,000 people added money into an IF ISA, according to the latest HMRC data. However, in 2024, the range of investments expanded, with long-term asset funds and open-ended property funds with extended notice periods allowed inside Innovative Finance ISAs, which could potentially increase their popularity.
In December 2019, the FCA introduced rules that prevented new investors from putting more than 10% of their assets into the sector without independent advice. Peer-to-peer platforms can also only communicate “direct-offer financial promotions” to retail clients that are classified as sophisticated investors or high net worth investors.
IF ISAs are considered the most risky ISA option. Because each ISA provider tends to specialise in a particular niche – small businesses or property developers, for example – it is difficult to diversify across different sectors.
How Help to Buy ISAs work
It’s no longer possible to open a Help to Buy ISA, as they have been replaced by Lifetime ISAs. However, if you already have one, you can continue paying into it until November 2029.
You can contribute up to £200 each month and the government will then top up your savings by 25% (up to a maximum of £3,000) when you buy your first home. You can claim the bonus until November 2030. The home you buy must be priced at £250,000 or less (£450,000 or less in London), be the only property you own and where you intend to live.
As it stands, LISAs are more flexible as the maximum property price is £450,000 for the whole of the UK, you can use it as a retirement nest egg if you don’t end up buying a home, plus the maximum amount you can add into one each tax year is higher.
If you are using a LISA to buy your first home, you must purchase the property at least 12 months after you’ve made your first payment into the LISA.
Are ISAs subject to inheritance tax?
ISA savings and investments do form part of an estate for inheritance tax (IHT) purposes. That said, married couples and civil partners are allowed to pass their estate to their spouse tax free when they die.
ISAs can also be passed on and retain their all-important tax-free status.
The additional permitted subscription (APS), also known as the inherited ISA allowance, gives the beneficiary an extra ISA allowance, allowing more tax-efficient savings to be made.
For example, say you have £100,000 in your ISAs. When you die, your husband, wife or civil partner will get a one-off £100,000 ISA allowance, in addition to his or her £20,000 allowance.
This allowance can be used by a spouse or civil partner, regardless of whether an ISA is left to them or not.
So even if you decide to leave the money in your ISAs to someone else in your family, your spouse is still entitled to the extra allowance to the value of the assets held in your ISAs.
If that £100,000 of ISA assets was left to a child, your spouse would still be entitled to an increased ISA allowance of £100,000 and could use their own money to fund it.
If you've been contributing to a Junior ISA for your child or grandchild, payments may be subject to inheritance tax if you leave an estate worth more than £325,000. However, rules surrounding 'gifting' will apply. You can give gifts of up to £3,000 each year, without incurring IHT. There’s another gift allowance that allows you to hand out £250 to a person each year. It can't be used on somebody you've already used a gifting allowance on, however.
There will be no IHT to pay if the money was paid into the Junior ISA seven or more years before your death.
We explore this topic further in our guide: Can I shield my ISAs from inheritance tax?
Are ISAs worth it?
ISAs are majorly worth it because they shield your interest, capital gains and dividends from tax.
You can also pass on the value of your ISA to a spouse or civil partner tax-efficiently.
However, you should only be opening and adding money into an ISA if you don’t have any debts to pay off or credit card balances to clear.
One major drawback to ISAs is the £20,000 annual allowance, but there is no harm in using this allowance first then putting any additional money into other accounts like a general investment account or standard cash savings account (if any interest earned will fall below the Personal Savings Allowance).
When and why were ISAs introduced?
ISAs were introduced in the UK in 1999, under then chancellor Gordon Brown. While the annual allowance is now £20,000, it started at £7,000.
ISAs replaced the earlier personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs).
The main reason ISAs were introduced was to encourage those on middle and lower incomes to save their money without being subject to tax.
-
Inheritance tax investigations chase 14,000 bereaved families for underpaymentHMRC investigated a third more families over inheritance tax bills in the three years to April 2025 following a government crackdown on underpayments.
-
How to invest as the shine wears off consumer brandsConsumer brands no longer impress with their labels. Customers just want what works at a bargain price. That’s a problem for the industry giants, says Jamie Ward
