An ISA, or Individual Savings Account, is a tax-efficient savings or investment account available to eligible people in the UK.
Money held within an ISA can earn interest, investment income or capital gains without UK Income Tax or Capital Gains Tax being charged on those returns, provided the account continues to meet the ISA rules.
For the 2026/27 tax year, the overall adult ISA allowance is £20,000, as confirmed in the official GOV.UK ISA guidance.
You can use the allowance in one ISA or divide it between different ISA accounts, subject to the rules for each type of ISA and your provider’s terms.
The UK tax year runs from 6 April to 5 April, and unused ISA allowance cannot normally be carried forward into the next tax year.
ISAs can be used for different financial goals, including building cash savings, investing for the future, saving towards a first home or putting money aside for a child.
How does an ISA work?
An ISA acts as a tax-efficient wrapper around savings or investments.
If you hold cash in a Cash ISA, the interest is tax-free. If you hold qualifying investments within a Stocks and Shares ISA, investment income and capital gains generated within the ISA are also generally free from UK Income Tax and Capital Gains Tax.
You do not normally need to report ISA interest, investment income or capital gains on your Self Assessment tax return.
You can have more than one ISA and can divide your annual allowance across multiple ISA accounts, provided your total subscriptions remain within the overall annual limit and any ISA-specific limits.
The main exception is the Lifetime ISA. You can only pay into one Lifetime ISA in a tax year, and the Lifetime ISA subscription limit is £4,000.
Who can open an ISA?
To open an adult ISA, you must normally be 18 or over.
You must also normally be either:
- resident in the UK
- a Crown servant or member of the armed forces serving overseas
- the spouse or civil partner of an eligible Crown servant or member of the armed forces
A Lifetime ISA has an additional age restriction. You must be 18 or over but under 40 when you make your first payment into the account.
Children under 18 cannot open a standard adult ISA but may be eligible for a Junior ISA.
A parent or guardian with parental responsibility can open and manage a Junior ISA for a child. The money legally belongs to the child. The child can normally take control of the account from age 16, but withdrawals cannot usually be made until age 18.
What are the main types of ISA?
There are four main types of adult ISA:
- Cash ISA
- Stocks and Shares ISA
- Lifetime ISA
- Innovative Finance ISA
There is also a Junior ISA for eligible children under 18.
Junior ISAs are separate from the adult ISA allowance and have their own annual subscription limit.
Each type works differently, so the most appropriate option will depend on factors such as access to your money, investment risk, time frame and financial objectives.
Cash ISA
A Cash ISA works in a similar way to a traditional savings account, but the interest earned within the ISA is tax-free.
Cash ISAs can be used for short-term or medium-term savings, emergency funds or money you do not want to expose to investment-market risk.
They are commonly offered by banks, building societies and other eligible ISA providers.
Eligible deposits with a UK-authorised bank, building society or credit union may be protected by the Financial Services Compensation Scheme.
From 1 December 2025, the standard FSCS deposit protection limit is £120,000 per eligible person, per authorised firm.
The protection applies to the authorised firm rather than each individual banking brand. Different brands can share the same banking licence or authorisation, so it is worth checking how the protection applies to your accounts.
Easy Access Cash ISA
An Easy Access Cash ISA normally allows you to withdraw money relatively easily.
This can make it useful for emergency savings or shorter-term financial goals.
Interest rates are often variable, which means the provider may increase or reduce the rate. Some accounts also restrict the number of withdrawals or apply other conditions, so the account terms should always be checked.
Fixed-rate Cash ISA
A Fixed-rate Cash ISA normally pays a set interest rate for a fixed period.
These accounts can suit people who are comfortable leaving their money untouched for an agreed period.
Withdrawing money before the end of the fixed term may result in an interest penalty, account closure or other restrictions depending on the provider.
Notice Cash ISA
A Notice Cash ISA normally requires you to give the provider a specified amount of notice before making a withdrawal.
This gives less immediate access than an easy access account but may offer a different interest rate in return.
The notice period varies between providers, so it is important to check the terms before opening the account.
Regular Saver Cash ISA
A Regular Saver Cash ISA is designed for people who want to build savings gradually.
These accounts may require or encourage regular monthly contributions and can include conditions affecting withdrawals or interest.
Always check the provider’s rules before committing to regular payments.
Stocks and Shares ISA
A Stocks and Shares ISA allows you to hold qualifying investments within a tax-efficient ISA wrapper.
Depending on the provider and ISA rules, investments can include shares, investment funds, corporate bonds, government bonds and other eligible investments.
From 6 April 2026, Long Term Asset Funds can also qualify for Stocks and Shares ISAs, subject to the relevant rules.
Stocks and Shares ISAs are generally intended for people investing over a longer time frame and who are comfortable accepting investment risk.
Unlike cash savings, investments can rise or fall in value, and you may get back less than you originally invested.
FSCS protection for investments is different from deposit protection.
Where the conditions are met, an eligible claim against a failed investment firm may be protected up to £85,000 per eligible person, per firm.
FSCS protection does not compensate investors simply because an investment has fallen in value or performed poorly.
Lifetime ISA
A Lifetime ISA, commonly known as a LISA, is designed to help eligible people save towards their first home or later life.
You must make your first payment into a Lifetime ISA before you turn 40.
You can contribute up to £4,000 per tax year until you turn 50.
The government adds a 25% bonus, meaning the maximum government bonus is normally £1,000 per tax year if you contribute the full £4,000.
The £4,000 Lifetime ISA limit forms part of the overall £20,000 annual ISA allowance. It is not an additional allowance.
A Lifetime ISA can hold cash, investments or a combination of both, depending on the provider.
When can you withdraw from a Lifetime ISA?
You can normally withdraw money without the 25% withdrawal charge if you are:
- buying your first home under the qualifying rules
- aged 60 or over
- terminally ill with less than 12 months to live
Withdrawals for other reasons normally face a 25% withdrawal charge.
Because the charge applies to the amount withdrawn rather than simply removing the original government bonus, you can receive back less than you personally contributed.
Using a Lifetime ISA to buy your first home
To use Lifetime ISA savings for a qualifying first-home purchase:
- the property must cost £450,000 or less
- the purchase must take place at least 12 months after your first Lifetime ISA payment
- a conveyancer or solicitor must deal with the withdrawal
- you must normally be buying with a mortgage
- you must meet the first-time buyer conditions
If two first-time buyers are purchasing together and both hold Lifetime ISAs, each may be able to use their own savings and government bonus provided each person individually satisfies the rules.
Is the Lifetime ISA being replaced?
The government consulted during 2026 on a proposed new First Time Buyer ISA.
The intention is for the new product, once introduced, to be offered instead of the Lifetime ISA to new savers.
However, the current Lifetime ISA rules continue to apply. Until the replacement product becomes available, eligible people can still open a Lifetime ISA.
The government has also stated that existing Lifetime ISA holders will be able to continue saving into their accounts under the existing rules.
Innovative Finance ISA
An Innovative Finance ISA, or IFISA, is designed for certain qualifying alternative finance investments.
Eligible investments can include:
- qualifying peer-to-peer loans
- crowdfunding debentures
- certain alternative finance arrangements
- qualifying less-liquid investments
- UK cryptoasset Exchange Traded Notes, subject to the relevant rules
From 6 April 2026, UK cryptoasset Exchange Traded Notes, or cETNs, became qualifying investments for Innovative Finance ISAs rather than new Stocks and Shares ISA purchases.
Long Term Asset Funds moved in the opposite direction and are now qualifying investments for Stocks and Shares ISAs rather than new IFISA investments.
Innovative Finance ISAs can carry considerably more risk than ordinary cash savings.
Returns are not guaranteed, borrowers or investments can fail, and your capital may be at risk.
FSCS protection depends on the nature of the investment, the provider and the regulated activity involved. Some investments may not be protected at all.
Anyone considering an Innovative Finance ISA should understand the product and its risks before investing.
Junior ISA
A Junior ISA is a long-term, tax-free savings or investment account for an eligible child under 18.
There are two types:
- Cash Junior ISA
- Stocks and Shares Junior ISA
For the 2026/27 tax year, the Junior ISA allowance is £9,000.
Anyone can contribute to a child’s Junior ISA, but total contributions must remain within the annual allowance.
The money belongs to the child and normally cannot be withdrawn until they reach 18.
The child can generally take control of the account at 16, and the Junior ISA normally becomes an adult ISA when they turn 18.
A Junior ISA can therefore help parents, grandparents and other family members build long-term savings or investments for a child’s future.
However, because the money belongs to the child and becomes accessible to them at 18, families should consider whether that arrangement fits their wider financial plans.
ISA vs ordinary savings account
A standard savings account can still be useful, particularly where it offers a competitive interest rate.
However, interest earned outside an ISA may become taxable depending on your income and the tax-free savings allowances available to you.
Within a Cash ISA, qualifying interest remains tax-free.
Within an investment ISA, qualifying investment income and capital gains also benefit from the ISA tax treatment.
This can make ISAs particularly relevant to people with larger savings balances, investment portfolios or income that already uses available tax allowances.
Tax is not the only consideration, however.
You should also consider:
- interest rates
- investment charges
- access to your money
- investment risk
- provider terms
- FSCS protection
- your financial objectives
- your investment time frame
What is the ISA allowance for 2026/27?
For the 2026/27 tax year, the overall adult ISA allowance is £20,000.
You can put the full amount into one eligible ISA or divide it between different ISA types, subject to the relevant rules.
For example, you could contribute:
- £10,000 to a Cash ISA
- £6,000 to a Stocks and Shares ISA
- £4,000 to a Lifetime ISA
That would use the full £20,000 annual allowance.
The Junior ISA allowance is separate and is £9,000 for 2026/27.
Important: Cash ISA rules are changing from April 2027
The ISA rules will change from 6 April 2027.
For people aged under 65, the annual amount that can be subscribed to Cash ISAs will be limited to £12,000.
The overall annual ISA allowance will remain £20,000.
This means someone under 65 could still use the full £20,000 ISA allowance, but no more than £12,000 of that annual subscription could go into Cash ISAs.
For people aged 65 or over, the Cash ISA subscription limit will remain £20,000.
The government has confirmed that the overall £20,000 ISA limit, £4,000 Lifetime ISA limit and £9,000 Junior ISA limit will remain at those levels until 5 April 2031.
Additional rules will also apply from April 2027, including restrictions on certain transfers from non-Cash ISAs into Cash ISAs for people under 65.
These changes do not affect the current 2026/27 annual ISA allowance.
Can you have more than one ISA?
Yes.
You can hold more than one ISA and can build up ISAs with different providers over time.
Under the current rules, you can also divide your current tax year’s allowance across more than one ISA account, provided your total subscriptions stay within the overall annual allowance and you comply with any product-specific limits.
The main exception is the Lifetime ISA, where you can only subscribe to one Lifetime ISA in a tax year.
Can you withdraw money from an ISA?
Generally, yes.
You can normally withdraw money from an ISA without the withdrawal itself creating an Income Tax or Capital Gains Tax charge.
However, the provider’s own withdrawal conditions may apply.
For example:
- an Easy Access Cash ISA may permit frequent withdrawals
- a fixed-rate Cash ISA may impose an interest penalty
- investments may need to be sold before cash can be withdrawn from a Stocks and Shares ISA
- Lifetime ISAs have separate withdrawal rules and can carry a 25% charge for non-qualifying withdrawals
It is therefore important to check the specific account terms.
What is a flexible ISA?
Some ISAs operate under flexible rules.
A flexible ISA can allow you to withdraw cash and replace it within the same tax year without the replacement necessarily reducing your remaining annual allowance.
For example, if you contribute £10,000 to a flexible ISA during the 2026/27 tax year and later withdraw £3,000, you may be able to replace that £3,000 during the same tax year without it counting as an additional subscription.
Flexible ISA rules can be more detailed where previous-year funds are involved, and not every ISA provider offers flexibility.
You should therefore check with the provider before withdrawing money if you intend to replace it later.
How do ISA transfers work?
You can normally transfer all or part of an ISA from one provider to another.
This may be useful if you find a better savings rate, lower investment charges, improved service or an ISA that better matches your requirements.
The key rule is to use the official ISA transfer process through the new provider.
Simply withdrawing the money yourself and then paying it into another ISA can affect its tax-efficient status or cause the payment to count towards your current annual subscription allowance, depending on the circumstances and flexible ISA rules.
Under current GOV.UK guidance, ISA transfers should normally take no longer than:
- 15 working days for transfers between Cash ISAs
- 30 calendar days for other ISA transfers
Different rules or practical restrictions can apply to Lifetime ISAs, Junior ISAs and some Innovative Finance ISA investments.
Providers may also impose transfer or exit charges.
How do you open an ISA?
ISAs are available through authorised providers such as banks, building societies, investment firms and other eligible financial institutions.
Depending on the provider, you may be able to apply online, through an app, over the phone, by post or in a branch.
You will normally need to provide personal information such as your name, address and date of birth.
ISA applications also normally require your National Insurance number where applicable, and Lifetime ISA applicants must provide one.
Before opening an ISA, consider:
- the savings interest rate or investment choices
- charges and fees
- withdrawal conditions
- transfer rules
- whether the ISA is flexible
- FSCS protection
- whether the provider is appropriately authorised
- investment risk
- your intended time frame
What about Help to Save?
Help to Save is separate from the ISA system.
It is a government-backed savings scheme for eligible people receiving Universal Credit.
Eligible savers can receive a government bonus of 50p for every £1 saved over the four-year life of the account.
You can normally save between £1 and £50 each calendar month.
Help to Save is not an ISA and has its own eligibility and bonus rules, but eligible individuals may want to consider it alongside their wider savings arrangements.
Do ISAs affect Inheritance Tax?
An ISA provides tax advantages during the account holder’s lifetime, but the investments do not automatically fall outside the estate for Inheritance Tax purposes.
When an ISA holder dies, the ISA investments form part of their estate for Inheritance Tax.
However, an ISA can normally continue as a “continuing account of a deceased investor” for a limited period.
No Income Tax or Capital Gains Tax is normally due on income or gains within the ISA before it is closed, the estate administration is completed or the applicable post-death period ends.
There are also separate rules that can provide a surviving spouse or civil partner with an additional permitted ISA subscription based on the deceased spouse’s ISA.
Estate and Inheritance Tax planning can be complex, so the appropriate treatment should be considered alongside the individual’s wider estate.
Which ISA is right for you?
There is no single ISA that is best for everyone.
A Cash ISA may be considered where the priority is holding cash without investment-market risk.
A Stocks and Shares ISA involves investment risk and may be more relevant where someone has a longer investment time frame and accepts that the value of investments can fall as well as rise.
A Lifetime ISA provides a government bonus for eligible savers but has specific rules covering age, first-home purchases and withdrawals.
An Innovative Finance ISA can involve higher-risk or less-liquid investments and requires a clear understanding of the risks involved.
A Junior ISA provides a tax-efficient way to save or invest for a child, but the money belongs to the child and normally becomes available to them at age 18.
The important point is to consider the account’s tax treatment, access rules, charges, risk and time frame rather than choosing an ISA solely because of its tax advantages.
Final thoughts
An ISA can be a useful part of personal financial planning.
For the 2026/27 tax year, eligible adults can subscribe up to £20,000 across ISAs, while the Junior ISA allowance is £9,000 and the Lifetime ISA limit is £4,000 within the overall adult allowance.
The details matter.
Cash ISA interest rates, investment risk, withdrawal restrictions, transfer rules, FSCS protection and future ISA reforms can all affect how suitable an account is for a particular objective.
The confirmed Cash ISA changes from 6 April 2027 are particularly important for savers under 65, as the Cash ISA subscription limit will fall to £12,000 while the overall ISA allowance remains £20,000.
For business owners, landlords, contractors and individuals with more complex tax affairs, ISA planning may also need to be considered alongside savings interest, Self Assessment, dividends, Capital Gains Tax, pensions and wider personal tax planning.
Accounting People provides accounting and tax support for individuals and businesses in London and across the UK, helping clients understand their tax position and make informed financial decisions.
Need help understanding how your savings, investments and wider tax position fit together? Speak to Accounting People for practical personal tax guidance tailored to your circumstances.
