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. Interest, investment returns and 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. The short answer to whether you pay capital gains tax on shares inside an ISA is no, at any size of gain.

What is the ISA allowance for 2026/27?

The ISA allowance for 2026/27 is £20,000. This is the total you can pay into ISAs between 6 April 2026 and 5 April 2027. It resets every year. 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. This is true however much it grows or however 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. It will not quietly change at every Budget. These other ISA limits are useful to know alongside it:

• Overall ISA allowance: £20,000 in 2026/27, shared across every ISA you hold.
• Lifetime ISA: £4,000 a year, taken from 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. Its 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. The key question with cash is whether your rate keeps up with inflation. It is 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. Investment values can fall as well as rise, and you could get back less than you put in. Over the long term, investment returns have historically beaten cash savings rates. Past performance is not a guide to future results. Our guide to how a stocks and shares ISA works covers what you can hold and how transfers work.

You can split your £20,000 allowance across both types in the same year. You are not restricted to one. For example, if you put £6,000 in a cash ISA, you have £14,000 of allowance left. That can go into a stocks and shares ISA, a Lifetime ISA, or both, in any combination you like.

You may also come across two other types. An Innovative Finance ISA holds peer-to-peer loans and similar assets. A Junior ISA is opened for a child under 18. It has its own £9,000 limit in 2026/27, separate from your own £20,000. Paying into one does not use up your own allowance.

Can you move money between ISAs?

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

If you withdraw the money yourself and pay it into the new account, it counts as a fresh contribution. It uses up your allowance. On a large balance, this 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 ISA or an Innovative Finance ISA into a cash ISA will be blocked for under-65s. Moving cash the other way, into an investment ISA, stays allowed. None of 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 a year in savings interest tax-free outside an ISA. Higher-rate taxpayers get £500. Additional-rate taxpayers get nothing. An ISA works separately and on top of this. Money inside an ISA is sheltered from tax indefinitely, with no cap on how much can build up over time.

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

Unlike the PSA, an ISA has no cap on how much can build up over time. The £20,000 only limits how much you can add each year. Money already inside an ISA stays sheltered from tax indefinitely. Full details are on gov.uk/individual-savings-accounts.

What is a Lifetime ISA?

A Lifetime ISA (LISA) is open to people aged 18–39. You can save up to £4,000 a year. This counts towards your £20,000 ISA allowance. 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 when you take money out. If you withdraw for anything other than a qualifying first home, reaching 60, or terminal illness, a 25% withdrawal charge applies to the amount withdrawn. This can leave you with less than you paid in. You can keep contributing until you turn 50.

On 22 June 2026, the government published a consultation on a new First Time Buyer ISA. It would have no withdrawal charge and would be 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. Existing holders can carry on saving under the current rules.