Individual Savings Account (ISA)

An ISA is a wrapper, not an investment. You open it with a bank, building society or investment platform, pay in money that has already been taxed, and hold cash or investments inside. There is no relief going in. The reward is that interest, dividends and gains inside are free of UK tax, never go on a tax return, and come out as tax-free cash rather than income.

The allowance runs per tax year, 6 April to 5 April. For 2026/27 you can pay in up to £20,000 in total, in one account or split across several, including two of the same type. Unused allowance is lost on 5 April, but money already inside stays sheltered for as long as you leave it there.

You must be 18 or over and UK resident, or a Crown servant posted abroad, to pay in. ISAs can’t be held jointly, so each partner in a couple has their own £20,000. The closest US counterpart is the Roth IRA, and Canada’s is the TFSA: after-tax money in, tax-free money out. Unlike a Roth IRA, an ISA has no income limit and no age rule for taking out growth.

Cash, stocks and shares, and innovative finance ISAs differ mainly in what they hold, as the table shows; since 6 April 2026, new cryptoasset exchange traded notes go in an innovative finance ISA.

The Lifetime ISA is the special case. You open it between 18 and 39 and can pay in up to £4,000 a year until 50, inside the £20,000, and the government adds a 25% bonus of up to £1,000 a year. Withdrawals are penalty-free for a first home costing £450,000 or less, bought at least 12 months after your first payment, from age 60, or with a terminal illness. Any other withdrawal loses 25% of the whole amount, more than the bonus: £800 saved plus a £200 bonus leaves £750.

A Junior ISA is a separate account for a child under 18 living in the UK, with its own £9,000 limit for 2026/27. The money belongs to the child, who can manage it from 16 but can’t withdraw until 18.

From 6 April 2027, under-65s can put no more than £12,000 a year into cash ISAs, within the unchanged £20,000 total; those 65 and over keep a £20,000 cash limit. Anti-avoidance rules starting the same day restrict transfers from stocks and shares and innovative finance ISAs into cash ISAs and charge 22% on interest paid on cash held inside those non-cash ISAs.

The main alternative is a pension such as a SIPP, and the two tax the money at opposite ends. A pension adds relief going in, 20% at source and more for higher-rate taxpayers, then taxes three-quarters of what comes out as income. An ISA gives no relief going in and takes nothing coming out. With the same tax rate at both ends, the pension’s tax-free quarter usually puts it ahead, and employer contributions widen the gap.

The ISA wins on access. Pension money is locked until 55, rising to 57 in April 2028, while ISA money can fund a house deposit, a career break or retiring before pension age. ISA withdrawals aren’t income, so a large one can’t push you into a higher band or cost you the personal allowance, which shrinks by £1 for every £2 of income above £100,000. And from 6 April 2027 unused pension funds count toward Inheritance Tax, as ISAs already do, removing an old reason to leave money you may never spend in the pension. Many savers use both, the UK form of tax diversification.

The tax shelter itself rarely causes trouble; money is usually lost at the edges. One rule catches people in particular: the allowance counts what you pay in, not what the account holds. Taking £5,000 out of a non-flexible ISA and putting it back uses £5,000 of the year’s allowance a second time, while a flexible ISA lets you replace cash withdrawn in the same tax year without using new allowance. Ask your provider which kind you have. The mistakes that come up most:

In retirement an ISA is the flexible, tax-free layer of income. A common UK withdrawal strategy draws taxable pension income up to the personal allowance or the top of the basic-rate band, then tops up spending from the ISA, which adds nothing to taxable income. Before pension age it can be the whole bridge: someone who stops work at 50 needs enough outside pensions to cover the years until 57, and more until the State Pension starts at 66 to 68, depending on date of birth.

While you’re working, which to fill first is a trade-off rather than a rule. Pension relief and employer money are hard to beat, but a plan that keeps everything in pensions leaves every pound drawn taxable and little accessible before 57.