An ISA allowance is the maximum amount you can pay into your Individual Savings Accounts each tax year without paying tax on the returns you earn. This tax-free limit applies across all your ISAs combined whether you choose a Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, or Lifetime ISA.
The ISA allowance is set by the government and can change each tax year. Any interest, dividends, or capital gains made within your ISA stay tax-free as long as you stick to the annual limit.
Understanding how ISA allowances work helps you plan your savings or investments wisely and make the most of your tax-free benefits.
Before you open or pay into an ISA, it’s important to understand how the ISA allowance works and how to use it. Each tax year, you can save or invest up to the full ISA allowance across one or more types of ISA but you can’t carry any unused allowance over to the next year.
There are different types of ISAs including Cash ISAs, Stocks & Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs each with their own rules and benefits. Knowing which ISA suits your goals and how to split your allowance can help you maximise your tax-free savings and stay within the rules.
The income from ISA investments is exempt from income tax. Any capital gains made on investments held in an ISA are exempt from capital gains tax.
Savers are able to subscribe any amounts into a cash ISA, a stocks and shares ISA or an innovative finance ISA subject to not exceeding the overall annual investment limit.
Investors may transfer their investments from one kind of ISA to another.
The Lifetime ISA is available for those aged between 18 and 40. Save up to £4,000 each year up until the age of 50, and receive a government bonus of 25% (a bonus of up to £1,000 a year). Savers can use some or all of the money to buy their first home, or keep it until they are aged 60 when the account can be accessed tax free. Conditions apply to the account holder and property purchased. Penalties apply if funds are withdrawn in other circumstances.
A Help to Buy ISA provides a tax free savings account for first time buyers wishing to save for a home. The scheme provides a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. The bonus will be paid in the form of a voucher when the first home is purchased. Conditions apply to the account holder and to the property purchased. Help to Buy ISAs closed to new savers on 30 November 2019. Existing holders can continue saving until 30 November 2029 and will have until 1 December 2030 to claim their bonus.
| Limits | 2025/26 (£) | 2024/25 (£) |
|---|---|---|
| Overall annual investment limit | 20,000 | 20,000 |
| Junior ISA annual investment limit | 9,000 | 9,000 |
| Help to Buy ISA monthly subscription limit | 200 | 200 |
| Lifetime ISA annual investment limit | 4,000 | 4,000 |
Most people who live in the UK for tax purposes can make use of their ISA allowance to save or invest tax-free.
Age Rules:
Residency Rules:
You must be a UK resident for tax purposes to pay into an ISA. If you move abroad, you can keep existing ISAs open but can’t pay into them while you’re non-resident. Some Crown employees working abroad for the UK government, and their spouses or civil partners, are treated as UK residents for ISA purposes.
Other Rules to Note:
You can split your ISA allowance across different types of ISAs in the same tax year, but you can only pay into one of each type in that year (for example, one Cash ISA and one Stocks & Shares ISA). The only exception is a Lifetime ISA, which has its own annual limit and must follow specific rules for withdrawals.
Knowing who qualifies to use ISA allowances and the rules that apply helps you plan your tax-free savings efficiently and avoid breaking HMRC’s contribution limits.
Using your ISA allowance wisely means making the most of your tax-free savings each tax year. You can choose to put all your allowance into one type of ISA or split it between different types for example, a Cash ISA for savings and a Stocks & Shares ISA for investing.
To use your ISA allowance:
Remember, you can’t carry any unused ISA allowance over so if you don’t use it by the end of the tax year (5 April), you lose it.
What is an ISA allowance?
An ISA allowance is the maximum amount you can save or invest in Individual Savings Accounts each tax year without paying tax on the interest, dividends, or capital gains you earn.
How much is the ISA allowance?
The ISA allowance is set by the government each tax year. For adults, the total allowance applies across all ISAs combined including Cash ISAs, Stocks & Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs.
Can I have more than one ISA?
Yes you can have multiple ISAs but you can only pay into one of each type per tax year. You can split your allowance between different types as long as you don’t exceed the total annual limit.
Who can use an ISA allowance?
UK residents aged 16+ can open a Cash ISA. You must be 18 or older for a Stocks & Shares ISA, Innovative Finance ISA, or Lifetime ISA. Parents or guardians can open Junior ISAs for children under 18.
Can I carry over unused ISA allowance?
No if you don’t use your full ISA allowance within the tax year, you lose it. It doesn’t roll over to the next year.
What happens if I exceed my ISA allowance?
If you accidentally pay in more than your ISA allowance, you may have to pay tax on the excess and HMRC may ask you to withdraw the extra amount.
Are ISAs really tax-free?
Yes any interest, dividends, or gains earned within an ISA are tax-free for life as long as your contributions stay within the annual limits.
What’s the difference between a Cash ISA and a Stocks & Shares ISA?
A Cash ISA works like a savings account with tax-free interest. A Stocks & Shares ISA lets you invest in the stock market, bonds, or funds returns can be higher but your money is at risk.
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