The Short Answer

An Individual Savings Account (ISA) is a tax-free wrapper for your savings or investments. You can save up to £20,000 per tax year and pay no tax on the interest or investment returns.

Types of ISA

Cash ISA

A savings account where the interest is tax-free. Best for short-term goals or your emergency fund.

Stocks and Shares ISA

Invest in funds, shares, or bonds with no tax on gains or dividends. Better for longer-term goals (5+ years).

Lifetime ISA

For under-40s saving for a first home or retirement. The government adds a 25% bonus on up to £4,000 per year.

Innovative Finance ISA

Holds peer-to-peer loans. Higher potential returns but higher risk than cash.

ISA Allowance 2026/27

  • £20,000 total across all ISAs per tax year.
  • You can split the allowance between different ISA types.
  • Lifetime ISA has a £4,000 sub-limit within the £20,000.

How ISAs Save You Tax

Without an ISA, you would pay income tax on savings interest above your Personal Savings Allowance (£1,000 for basic rate taxpayers, £500 for higher rate). Inside an ISA, all interest and investment growth is completely tax-free — no income tax, no Capital Gains Tax, and no tax on dividends.

ISA Tips

  • Use it or lose it. Your annual allowance does not roll over to the next tax year.
  • Start early in the tax year. The sooner your money is sheltered, the more tax-free growth you capture.
  • Consider Stocks and Shares for longer-term goals (5+ years) where you can ride out short-term volatility.