How ISAs Work in the UK: 2026/27 Guide

What is an ISA and how does it work?

An ISA (Individual Savings Account) is a tax-free wrapper for your money. Any interest, investment returns, or dividends earned inside an ISA are exempt from UK income tax and capital gains tax. You can also withdraw money without paying tax. The key limit is how much you can add each year: up to £20,000 per tax year.

Without an ISA, interest on your savings and returns on your investments are taxable income. With an ISA, the taxman can’t touch any of it. That is why the question of whether you pay capital gains tax on shares inside an ISA has such a short answer: you don’t, at any size of gain.

What is the ISA allowance for 2026/27?

The ISA allowance for 2026/27 is £20,000. That is the total you can pay into ISAs between 6 April 2026 and 5 April 2027. It resets every year, and if you don’t use it, you lose it: unused allowance cannot be carried into the next year.

Once money is inside your ISA, it stays protected from tax indefinitely, no matter how much it grows or how many years pass. The allowance only limits what you can add each year, not how much you can hold.

The £20,000 figure is frozen until 5 April 2031, so it is not something that quietly moves every Budget. A few of the other ISA limits are worth knowing alongside it:

• Overall ISA allowance: £20,000 in 2026/27, shared across every ISA you hold.
• Lifetime ISA: £4,000 a year, which comes out of the same £20,000.
• Junior ISA: £9,000 in 2026/27, held in a child’s name and separate from your own allowance.

All three are frozen until 5 April 2031.

What is the difference between a cash ISA and a stocks and shares ISA?

A cash ISA works like a savings account, it earns tax-free interest and your capital is protected. A stocks and shares ISA holds investments such as shares and funds; the value can rise or fall, and you may get back less than you put in. Both share the same £20,000 annual allowance. You can split contributions across both types in the same tax year.

There are two main types:

• Cash ISA: Works like a regular savings account, but the interest is tax-free. Rates tend to follow the Bank of England base rate, and the real question with cash is whether the rate you are getting keeps up with inflation. Low risk, your balance doesn’t go up or down with markets.
• Stocks and Shares ISA: Lets you invest in shares, funds, bonds, and other assets, all sheltered from tax. The value of investments can fall as well as rise, and you could get back less than you put in. Over the long term, investment returns have historically exceeded cash savings rates, but past performance is not a guide to future results. Our guide to how a stocks and shares ISA works goes through what you can hold and how transfers work.

You can split your £20,000 allowance across both types in the same year, you’re not restricted to one. Put £6,000 in a cash ISA and you have £14,000 of allowance left for a stocks and shares ISA, or a Lifetime ISA, or both, in any combination you like.

There are two other types you may come across. An Innovative Finance ISA holds peer-to-peer loans and similar assets. A Junior ISA is opened for a child under 18 and has its own separate £9,000 limit in 2026/27, so paying into one does not eat your own £20,000.

Can you move money between ISAs?

Yes, and there is a right way to do it. If you want to shift money from a cash ISA into a stocks and shares ISA, or just move to a different provider, you ask the new provider to run a formal ISA transfer. Done that way, the money keeps its tax-free status and does not count as a new contribution, so it does not use up any of your £20,000.

Withdrawing the money yourself and paying it into the new account is treated as a fresh contribution and does use your allowance. On a large balance that can quietly cost you most of a year’s allowance for no reason.

One rule changes from 6 April 2027: transfers from a stocks and shares or Innovative Finance ISA into a cash ISA will be blocked for under-65s. Moving cash the other way, into an investment ISA, stays allowed. Nothing about this applies in 2026/27.

How does an ISA differ from the Personal Savings Allowance?

The Personal Savings Allowance (PSA) lets basic-rate taxpayers earn up to £1,000 per year in savings interest tax-free outside an ISA (£500 for higher-rate taxpayers; nothing for additional-rate). An ISA is separate and additional, money inside an ISA is sheltered from tax indefinitely, with no cap on how much can accumulate over time.

Which PSA you get depends on which income tax band you fall into, so it can shrink the year you get a pay rise. The ISA allowance does not work like that: it is £20,000 for everyone in 2026/27 regardless of what you earn.

Unlike the PSA, there is no cap on how much can accumulate inside an ISA over time, the £20,000 only limits how much can be added each year. Money already inside an ISA is sheltered from tax indefinitely. Full details are on gov.uk/individual-savings-accounts.

What is a Lifetime ISA?

A Lifetime ISA (LISA) is available to people aged 18–39. You can save up to £4,000 per year, which counts towards your £20,000 ISA allowance, and the government adds a 25% bonus worth up to £1,000 a year. It is designed for buying a first home worth up to £450,000 or for retirement saving.

The catch is on the way out. Take money out for anything other than a qualifying first home, reaching 60, or terminal illness and a 25% withdrawal charge applies to the amount withdrawn, which can leave you with less than you paid in. You can keep contributing until you turn 50.

The government published a consultation on 23 June 2026 proposing a new First Time Buyer ISA with no withdrawal charge, offered in place of the Lifetime ISA. Nothing has been legislated and no start date has been set. Until the new product exists you can still open a LISA, and existing holders can carry on saving under the current rules.

Frequently asked questions

What is the ISA allowance for 2026/27?

The annual ISA allowance for 2026/27 is £20,000. This is the maximum you can pay into ISAs in a single tax year, which runs from 6 April 2026 to 5 April 2027. Unused allowance cannot be carried forward, it resets on 6 April each year. The £20,000 limit is frozen until 5 April 2031.

Is the cash ISA allowance changing?

Not in 2026/27. There is no separate cash sub-limit this tax year, so the full £20,000 can go into cash. From 6 April 2027 the cash ISA limit falls to £12,000 for under-65s, with £20,000 kept for savers aged 65 and over. The overall ISA allowance stays at £20,000.

Can I have more than one ISA?

Yes. You can hold multiple ISAs of different types, for example, a cash ISA and a stocks and shares ISA simultaneously. Since April 2024, HMRC also allows you to open more than one ISA of the same type in a single tax year. The £20,000 annual allowance applies across all your ISA accounts combined.

Do I pay tax on ISA interest or gains?

No. Money inside an ISA is fully sheltered from UK income tax and capital gains tax. Interest earned on a cash ISA and investment gains inside a stocks and shares ISA are both tax-free, regardless of amount. You do not need to declare ISA income or gains on a Self Assessment tax return.

What happens to my ISA if I die?

On death, your ISA loses its tax-free status and forms part of your estate. However, a surviving spouse or civil partner can claim an Additional Permitted Subscription (APS) equal to the value of your ISA at the date of death, allowing them to shelter that amount in their own ISA. For estate planning questions, speaking to a financial adviser is worth considering.

Can I withdraw money from an ISA?

Yes, you can withdraw from a cash ISA or stocks and shares ISA at any time and the withdrawal is tax-free. However, unless your account is a flexible ISA, a withdrawal does not restore your annual allowance, you cannot put the money back in the same tax year if you have already used your full £20,000. Check with your provider whether your account is flexible before withdrawing and re-depositing.