Last updated: April 2026 · Sourced from official UK government publications
This is a plain-English definitions guide. All figures and rules are drawn from HMRC and gov.uk official sources. This is not financial advice, see the disclaimer below.
ISA stands for Individual Savings Account. Despite the name, it’s not just for savings, you can also use it to invest in shares and funds. The key thing about an ISA is that any money you make inside one is tax-free. Here’s how it all works.
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.
Each tax year (which runs from 6 April to 5 April), you can put up to £20,000 into ISAs. This is the annual ISA allowance. It resets every year, if you don’t use it, you lose it.
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.
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:
You can split your £20,000 allowance across both types in the same year, you’re not restricted to one.
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.
A separate government allowance, the Personal Savings Allowance (PSA), already lets basic-rate taxpayers earn up to £1,000 in savings interest per year tax-free outside an ISA (£500 for higher-rate taxpayers; nothing for additional-rate taxpayers). The ISA allowance exists alongside this.
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.
A Lifetime ISA (LISA) is available to people aged 18–39. You can save up to £4,000 per year (this counts towards your £20,000 ISA allowance) and the government adds a 25% bonus, worth up to £1,000 per year. It is designed for first-time home buyers or retirement saving, and withdrawals for other purposes incur a penalty.
There’s also a Lifetime ISA (LISA) for people aged 18–39. You can put in up to £4,000 per year (this counts towards your £20,000 allowance) and the government adds a 25% bonus, up to £1,000 per year. It’s designed for first-time buyers or retirement saving, and comes with a penalty if you withdraw the money for anything else.
The annual ISA allowance for 2025/26 is £20,000. This is the maximum you can pay into ISAs in a single tax year, which runs from 6 April to 5 April. Unused allowance cannot be carried forward, it resets on 6 April each year.
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.
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.
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.
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.
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