ISA Guide — 2025/26
Updated for the 2025/26 tax year
An Individual Savings Account (ISA) lets you save or invest up to £20,000 per tax year completely tax-free. No income tax on interest, no CGT on gains, and no tax on dividends. The £20,000 limit is shared across all ISA types in a single tax year.
ISA Types at a Glance
| ISA Type | Annual Limit | Age | Key Feature |
|---|---|---|---|
| Cash ISA | £20,000 | 18+ | Tax-free savings interest |
| Stocks & Shares ISA | £20,000 | 18+ | Tax-free investment growth & dividends |
| Lifetime ISA (LISA) | £4,000 | 18–39 | 25% government bonus |
| Junior ISA (JISA) | £9,000 | Under 18 | Tax-free savings for children |
| Innovative Finance ISA | £20,000 | 18+ | Peer-to-peer lending tax-free |
Lifetime ISA (LISA) — In Detail
The LISA is designed for first-time home buyers or retirement savings. You can contribute up to £4,000 per year (counts toward your £20,000 total). The government adds a 25% bonus— that’s up to £1,000 free money annually.
- Must be opened between ages 18 and 39
- Can contribute until age 50
- Withdrawals before 60 (unless buying your first home under £450,000) incur a 25% penalty on the amount withdrawn — this means you lose the bonus AND 6.25% of your own money
- First home must be purchased with a mortgage and cost under £450,000
Which ISA Should You Choose?
- Emergency fund (1–2 years): Cash ISA — easy access, no market risk.
- Long-term investing (5+ years):Stocks & Shares ISA — historically higher returns than cash.
- Saving for a first home or retirement: LISA — the 25% bonus is unbeatable, but watch the withdrawal penalty.
- Saving for a child: Junior ISA — locked until age 18, great for building a nest egg.
- Higher risk, higher return: Innovative Finance ISA — only if you understand peer-to-peer lending risks.
Key Rules to Remember
- You can split £20,000 across multiple ISA types in one tax year.
- From 2024/25 onwards, you can open multiple ISAs of the same type with different providers in the same tax year (a major rule change).
- “Flexible ISAs” let you withdraw and replace money in the same tax year without it counting toward your limit.
- ISA allowance is “use it or lose it” — it does not carry over.
- Transferring between ISA providers does NOT count as a new subscription.
Practical Tips
- Max out your ISA before investing in a general investment account — there is no reason to pay tax when you don’t have to.
- Higher-rate taxpayers benefit most — basic-rate taxpayers already get a £1,000 Personal Savings Allowance on cash interest.
- Consider “bed and ISA” — sell investments in a general account and rebuy inside an ISA to shelter future gains.