ISAs
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About ISAs
An Individual Savings Account (ISA) is a tax-free wrapper that lets UK residents save or invest up to £20,000 per tax year without paying income tax or capital gains tax on the returns. ISAs were introduced in 1999 to encourage long-term saving. They've become the most widely used tax shelter in the UK.
There are four types: Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs. You can split your £20,000 allowance across them however you like. Since April 2024, you can pay into more than one of the same type in the same tax year.
If you're earning enough to pay higher or additional rate tax, or you've built up savings and investments outside a tax-free wrapper, the ISA allowance is one of the most effective tools you have. Interest on cash, dividends from shares, and capital gains on investments all grow free of tax inside an ISA, and there's no limit on how much you can hold over time. With the dividend allowance now at £500, the capital gains tax exemption at £3,000, and the personal savings allowance unchanged since 2016, more people are paying tax on their savings and investments than at any point in the last decade.
At Vintage Wealth Management, we help you use your ISA allowance as part of a wider plan covering pensions, investments, tax planning, and protection. We look at which type of ISA fits your goals, how your ISA sits alongside your pension and other tax wrappers, and whether you're making the most of the allowance each year before it resets
How do ISAs work?
An ISA is a tax wrapper. You put cash or investments inside it, and any interest, dividends, or capital gains you earn within the account are free from UK income tax and capital gains tax. You don't need to declare ISA income or gains on your tax return. The wrapper itself doesn't change what you can save or invest in; it just changes how the returns are taxed.
The ISA allowance for the 2026/27 tax year is £20,000 per person. That's the total you can pay in across all your ISAs between 6 April and 5 April the following year. You can put the full £20,000 into a single ISA, or split it across a Cash ISA, a Stocks and Shares ISA, an Innovative Finance ISA, and a Lifetime ISA in any combination. Since April 2024, you can also pay into more than one ISA of the same type in the same tax year, so you're no longer locked into a single provider for each type. The exception is Lifetime ISAs and Junior ISAs, where you can still only pay into one of each per year.
The allowance resets every tax year, and you can't carry unused allowance forward. If you don't use it by 5 April, it's gone. There's no cap on how much you can hold in ISAs overall, though, so someone who's been using the full allowance every year since ISAs launched in 1999 could have well over £300,000 sheltered from tax before accounting for any growth. The earlier you start using the allowance, the more you benefit from compounding returns inside the tax-free wrapper.
What types of ISA are there?
There are four types of ISA for adults and one for children. Each holds different things, suits a different purpose, and has its own rules on contributions and access. You can hold more than one type at the same time, and you can split your £20,000 allowance across them however you like.
Innovative
Finance ISAs
An Innovative Finance ISA (IFISA) holds peer-to-peer loans or debt-based crowdfunding investments rather than cash or shares. The interest or returns you earn are tax-free, just as with other ISA types. IFISAs were introduced in 2016 to give investors a tax-efficient way to access these alternative lending platforms.
The returns can be higher than cash, but so is the risk. The underlying loans aren't protected by the FSCS, and if borrowers default you could lose some or all of your capital. IFISAs make up a very small share of the overall ISA market and they aren't suitable for most people. If you're considering one, it's important to understand the lending model, the platform's track record, and how the risks compare to other options within your ISA allowance.
Lifetime
ISAs
A Lifetime ISA (LISA) is designed for two purposes: saving for your first home, or saving for retirement. You can open one if you're between 18 and 39, and you can pay in up to £4,000 per year. The government adds a 25% bonus on top of your contributions, which means you can receive up to £1,000 in bonus each year. That £4,000 counts towards your overall £20,000 ISA allowance.
You can hold a LISA as a Cash LISA or a Stocks and Shares LISA, and you can keep paying in until you turn 50. To use the funds for a property purchase, the home must cost £450,000 or less and it must be your first property. For retirement, you can access the money from age 60.
If you withdraw for any other reason, you'll pay a 25% government withdrawal charge on the amount you take out. Because the charge is applied to the total including the bonus, you'll actually get back less than you put in.
For example, if you'd paid in £4,000 and received the £1,000 bonus, withdrawing the full £5,000 would cost you a £1,250 charge, leaving you with £3,750. This makes LISAs inflexible if your plans change. Make sure you're clear on what you're using it for before you open one.
The government has announced plans to replace the LISA with a new First-Time Buyer ISA from April 2028. The replacement is expected to remove the retirement savings function and scrap the withdrawal penalty, but the consultation is still underway. Existing LISAs will remain open and you can continue contributing to them.
Junior
ISAs
A Junior ISA (JISA) is a tax-free savings or investment account for children under 18. A parent or guardian opens the account, but anyone can contribute, including grandparents, family, and friends. The annual allowance is £9,000 for the 2026/27 tax year, and it's completely separate from the adult ISA allowance.
You can open a Cash JISA, a Stocks and Shares JISA, or one of each. The money is locked in until the child turns 18, at which point the account automatically converts into an adult ISA. The child takes control of the account at 16, but can't withdraw until 18. Because of the long time horizon, many families choose to invest rather than hold cash, since the money has years to ride out short-term market movements.
Total JISA holdings now stand at over £9 billion across more than two million accounts. Used consistently from birth, a Junior ISA can build a meaningful financial foundation by the time a child reaches adulthood.
Stocks and Shares ISAs
A Cash ISA works like a standard savings account, except the interest you earn is completely free from income tax. Your money is protected by the Financial Services Compensation Scheme up to £120,000 per provider, and your capital isn't at risk. Cash ISAs suit short-term goals, emergency funds, or anyone who doesn't want to take investment risk with their savings.
You can choose between easy access accounts, where you can withdraw at any time, and fixed-rate accounts, where your money is locked in for a set period in exchange for a higher rate. Some providers offer flexible Cash ISAs, which let you withdraw money and pay it back in within the same tax year without it counting as a new subscription against your allowance. That flexibility can be useful if you need access to your savings but don't want to lose any of your annual allowance.
From April 2027, the Cash ISA allowance will be capped at £12,000 per year for anyone under 65. The overall ISA allowance stays at £20,000, so the remaining £8,000 can be used in other ISA types. If you're 65 or over, nothing changes and you can still put the full £20,000 into cash. This makes the 2026/27 tax year the last year under-65s can put up to £20,000 into a Cash ISA.
What are the ISA tax benefits?
Everything you earn inside an ISA is free from UK tax. Interest on cash is free from income tax, dividends from shares are free from dividend tax, and any capital gains when you sell investments are free from capital gains tax.
You don't need to report ISA income or gains on your self-assessment tax return, and ISA holdings don't count against your personal savings allowance, dividend allowance, or capital gains tax annual exemption. The tax relief isn't something you need to claim. It applies automatically for as long as the money stays in the wrapper.
Those benefits have become more valuable as other allowances have shrunk and rates have risen. The capital gains tax annual exemption has fallen from £12,300 in 2022/23 to £3,000 today. The dividend allowance has dropped from £2,000 to £500, and from April 2026 the higher-rate dividend tax rate rose from 33.75% to 35.75%. The personal savings allowance, which gives basic-rate taxpayers £1,000 of tax-free interest and higher-rate taxpayers £500, hasn't changed since 2016, but with interest rates significantly higher than they were then, more savers are exceeding it. A higher-rate taxpayer with £30,000 in a non-ISA savings account earning 4% interest would pay tax on £700 of that interest. Inside a Cash ISA, the full £1,200 is theirs.
For investors, the picture is similar. A higher-rate taxpayer who sells shares outside an ISA and makes a £20,000 gain would pay £4,080 in capital gains tax after the £3,000 exemption. Inside a Stocks and Shares ISA, that gain is tax-free. The same applies to dividends. A portfolio generating £5,000 in dividends outside an ISA would leave a higher-rate taxpayer with a £1,608.75 tax bill on the £4,500 above the allowance. Inside the ISA, nothing is owed. Over years of compounding, the difference between taxed and untaxed returns adds up substantially.
What are the
ISA rules?
ISAs have a single set of rules that apply across all types, covering how much you can pay in, when you can transfer, and what happens if you withdraw. A few of them trip people up, particularly around transfers and flexible ISAs, so we've set them out in detail below
Allowance and contributions
Transfers
Flexible ISAs
Bed and ISA
The annual allowance, how you split it across ISA types, and the reset date are covered above in 'How do ISAs work.' You must be a UK resident and aged 18 or over to open an adult ISA. For a Lifetime ISA, you need to be between 18 and 39 to open one, though you can keep contributing until 50.
You can transfer ISA savings between providers and between ISA types without losing the tax-free status, and the transfer doesn't count against your annual allowance. Since April 2024, you can also transfer part of your current-year ISA balance to another provider. Previously, you had to move all or nothing for current-year subscriptions.
The important thing is to use the formal ISA transfer process through your new provider. If you withdraw the money yourself and pay it into a new ISA, it counts as a new subscription and uses up your allowance. For a non-flexible ISA, you'd also lose the tax-free status on the amount withdrawn. This is one of the most common mistakes people make with ISAs, and it's easily avoided.
A flexible ISA lets you withdraw money and replace it within the same tax year without the replacement counting as a new contribution. In a standard ISA, any withdrawal is gone from your allowance. If you've used your full £20,000 and take out £5,000, you can't put it back. In a flexible ISA, you can.
This is useful if you need short-term access to your savings but don't want to permanently lose part of your allowance. Not all providers offer flexible ISAs. Check before you open an account.
What happens to your ISA when you die?
Bed and ISA is the process of selling investments held outside an ISA and rebuying them inside your ISA wrapper. It's a way of gradually moving an existing portfolio into a tax-free environment using your annual allowance. The name comes from the older practice of "bed and breakfasting" shares for tax purposes.
The sale is a disposal for capital gains tax purposes, so you'll need to check whether the gain exceeds your £3,000 annual exemption before you sell. With the exemption as low as it is now, it often makes sense to spread bed and ISA transactions across multiple tax years to stay within the exemption each time. Getting the order and timing of disposals right can save you a lot in tax, and it's something we work through with you as part of your wider plan.
When you die, your ISA loses its tax-free status from the date of death, and the holdings become part of your estate for inheritance tax purposes. However, your spouse or civil partner can inherit an additional ISA allowance equal to the value of your ISA holdings at the date of death, known as an Additional Permitted Subscription (APS). This is on top of their own £20,000 annual allowance.
The APS means your surviving partner can effectively re-shelter the inherited savings in their own ISA, preserving the tax-free status. They have up to three years from the date of death, or 180 days after the administration of the estate is completed, whichever is later, to use it. This applies regardless of whether the inherited funds themselves are paid into the ISA, so your partner could use the APS allowance with their own money if they prefer.
What's changing
for ISAs in 2027?
The biggest change to ISAs takes effect on 6 April 2027. If you're under 65, the maximum you can pay into a Cash ISA will fall from £20,000 to £12,000 per year. The overall ISA allowance stays at £20,000, so the remaining £8,000 can be used in a Stocks and Shares ISA, Innovative Finance ISA, or Lifetime ISA. If you're 65 or over, nothing changes and you can still put the full £20,000 into cash.
The government is also introducing anti-avoidance measures alongside the cap. From April 2027, under-65s won't be able to transfer money from a Stocks and Shares ISA or Innovative Finance ISA into a Cash ISA. HMRC will introduce tests to identify "cash-like" investments held inside Stocks and Shares ISAs, and a charge on interest earned on uninvested cash held within investment ISA wrappers. The aim is to prevent savers from using investment ISAs as a way around the lower cash limit.
For anyone under 65 with significant cash savings, the 2026/27 tax year is the last opportunity to shelter up to £20,000 in a Cash ISA. If you've been using the full cash allowance each year, this is a good time to think about whether some of that money could sit in a Stocks and Shares ISA instead, particularly for savings you don't expect to need for five years or more. That's something we can help you work through as part of your wider financial plan.
Separately, the government has announced plans to replace the Lifetime ISA with a new First-Time Buyer ISA from April 2028. The replacement is expected to remove the retirement savings function and scrap the 25% withdrawal penalty, but the consultation is still underway and the details haven't been finalised. Existing LISAs will remain open and you can continue contributing to them.
How do ISAs compare to
pensions?
ISAs and pensions are both tax-efficient wrappers, but they work differently and suit different purposes. Most people benefit from using both, and the balance between them depends on your age, income, tax position, and when you'll need access to the money.
A pension gives you tax relief on the way in. Basic-rate taxpayers get 20% relief, higher-rate taxpayers can claim 40%, and additional-rate taxpayers 45%. Your employer may also contribute on your behalf. But your money is locked away until you reach the minimum pension age, currently 55 and rising to 57 from April 2028. When you draw it as income, it's taxed at your marginal rate after the 25% tax-free lump sum.
An ISA gives you no tax relief on contributions, but everything you take out is tax-free. There's no restriction on when you can access the money, no limit on how much you can withdraw, and no income tax when you do. For someone who expects to be a higher-rate taxpayer in retirement, or who wants flexibility before pension age, ISAs can be more tax-efficient than additional pension contributions above the employer match.
The two also differ on inheritance tax. From April 2027, most unused pension funds will be brought into the estate for inheritance tax purposes. ISA holdings are already part of your estate, but they benefit from the Additional Permitted Subscription for spouses, which lets your partner re-shelter the value in their own ISA. Neither wrapper is better in every situation, and the balance between the two shifts as your income, tax position, and retirement plans evolve. We help you work out that balance as part of your wider plan.
| EIS | SEIS | |
|---|---|---|
| Tax relief on contributions | None | 20%, 40%, or 45% |
| Tax on withdrawals | Tax-free | Income tax (after 25% tax-free lump sum) |
| Access | Anytime | From age 55 (rising to 57 from April 2028) |
| Annual allowance | £20,000 | £60,000 (tapered for high earners) |
| Inheritance tax | Part of estate | Part of estate from April 2027 |
| Lifetime limit | None | None (abolished April 2024) |
Why work with Vintage Wealth Management?
ISAs don't sit in a silo. Your pension, your other investments, your tax position, and your wider financial plan all feed into it. We look at the full picture and build a plan you can act on. Vintage Wealth Management has been advising on tax-efficient investment and estate planning for over a decade. We're named in the FT Adviser UK Top 100 Financial Advisers every year since 2021, and our team includes Chartered Financial Planners and Fellows of the Personal Finance Society who specialise in tax-efficient investment, estate planning, and wealth transfer. We've got offices in Central London, North West London, Portsmouth, Buckinghamshire, Swindon, and Dublin, and we work with clients across the UK. Get in touch and we'll take it from there.
Frequently asked questions about ISAs
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Yes. The personal savings allowance, dividend allowance, and capital gains tax exemption have all been cut significantly since 2022, which means more people are paying tax on savings and investments held outside an ISA. A higher-rate taxpayer with more than £12,500 in a savings account earning 4% will exceed their personal savings allowance and start paying tax on the interest. Inside a Cash ISA, all of that interest is tax-free. For investors, the capital gains tax exemption has fallen from £12,300 to £3,000, making a Stocks and Shares ISA one of the most effective ways to shelter a growing portfolio.
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It depends on whether you're paying tax on your savings interest. Every basic-rate taxpayer gets a £1,000 personal savings allowance, and higher-rate taxpayers get £500. If your interest stays within that allowance, a standard savings account and a Cash ISA give you the same after-tax return, and the savings account may offer a better rate. Once you exceed the allowance, a Cash ISA becomes more tax-efficient because all interest is sheltered. If you're a higher-rate taxpayer with significant savings, you'll likely exceed the £500 allowance quickly, and an ISA starts to make a big difference.
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The £20,000 limit applies to how much you can pay in each tax year, not how much you can hold. There's no cap on the total value of your ISA. If your investments grow or your interest compounds over several years, your ISA can be well above £20,000 and that's exactly how the wrapper is designed to work. You simply can't contribute more than £20,000 of new money in any single tax year.
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In a Cash ISA, no. Your capital is protected and your savings are covered by the Financial Services Compensation Scheme up to £120,000 per provider. In a Stocks and Shares ISA, yes. The value of your investments can fall as well as rise, and you could get back less than you put in. That's the trade-off for the higher potential returns that come with investing over the long term. The ISA wrapper protects you from tax, not from investment risk.
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ISAs are not being scrapped. The government has confirmed the ISA scheme will continue, and the £20,000 annual allowance remains in place. What is changing is the Cash ISA limit for under-65s, which falls to £12,000 from April 2027, and the Lifetime ISA, which is expected to be replaced by a new First-Time Buyer ISA from April 2028. Existing ISA holdings are unaffected by both changes.
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You can pay up to £20,000 into ISAs per tax year across all types combined. The Lifetime ISA has its own sub-limit of £4,000, which counts towards the £20,000 total. Junior ISAs have a separate allowance of £9,000. The allowance resets on 6 April each year and can't be carried forward, so any unused allowance is lost. From April 2027, under-65s will only be able to put £12,000 of that £20,000 into a Cash ISA, with the remainder available for other ISA types.
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Yes. Since April 2024, you can open and pay into more than one ISA of the same type in the same tax year. You could hold multiple Cash ISAs or multiple Stocks and Shares ISAs with different providers, as long as your total contributions don't exceed £20,000. The exception is Lifetime ISAs and Junior ISAs, where you can still only pay into one of each per year.
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Yes. You can transfer between providers and between ISA types without losing the tax-free status, and it doesn't count against your allowance. Since April 2024, you can also transfer part of a current-year balance. Always use the formal transfer process through your new provider. If you withdraw and redeposit yourself, it counts as a new subscription.
Disclaimer
The information supplied is based upon our understanding of current UK law and HM Revenue and Customs (HMRC) practice. Tax law and HMRC practice may change from time to time. The value of any tax relief will depend on the individual circumstances of the investor. Your capital is at risk. The value of investments within a Stocks and Shares ISA can fall as well as rise, and you could get back less than you invest. Past performance is not a reliable indicator of future results. Cash ISA deposits are protected by the Financial Services Compensation Scheme up to £120,000 per provider. The Financial Conduct Authority does not regulate tax planning. The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied, is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.