ISA Allowance 2025-26: Types, Limits and the Best ISA for Your Money
Individual Savings Accounts (ISAs) are the UK's most popular tax wrapper — a container in which cash savings or investments grow completely free of income tax and capital gains tax. For 2025-26, the annual ISA allowance remains £20,000 per person. You can split this across multiple ISA types in the same tax year, as long as the combined total does not exceed £20,000. Unused allowance cannot be carried forward — it resets on 6 April each year.
Types of ISA in 2025-26
Cash ISA
A Cash ISA works like a normal savings account but any interest earned is completely free of tax. Rates vary between easy-access accounts (typically 4.0%–5.0% in early 2025-26 depending on the provider) and fixed-rate Cash ISAs that lock your money for one to five years in exchange for a guaranteed rate. Your savings are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per institution.
Stocks and Shares ISA
A Stocks and Shares ISA holds investments — shares, funds, investment trusts, ETFs, and bonds. Any dividends, interest, or capital gains within the ISA are tax-free. Over the long term, equities have historically outperformed cash, but your capital is at risk and the value can fall as well as rise. Charges vary between platforms: annual platform fees typically range from 0.15% to 0.45% of your portfolio value, plus fund charges.
Lifetime ISA (LISA)
The Lifetime ISA is designed for two purposes: buying your first home, or saving for retirement. Key rules:
- Available to those aged 18–39 (you can continue paying in until age 50).
- Maximum contribution: £4,000 per year (counts within the £20,000 ISA allowance).
- Government bonus: 25% on contributions, up to £1,000 per year.
- Bonus is paid monthly by HMRC directly into your LISA.
- Withdrawal for first home purchase: property must cost under £450,000.
- Withdrawal for retirement: only penalty-free from age 60.
- Exit penalty for other withdrawals: 25% — which means you lose more than just the bonus (it effectively claws back approximately 6.25% of your own money).
Innovative Finance ISA (IFISA)
The IFISA holds peer-to-peer loans and similar products. Returns can be higher than cash but the risks are substantially greater — peer-to-peer lending is not covered by the FSCS and platforms have failed in the past. Suitable only for experienced investors who understand the risks.
Junior ISA (JISA)
Parents or guardians can open a JISA for a child under 18. The 2025-26 allowance is £9,000 per child per year. The money belongs to the child and cannot be withdrawn until their 18th birthday, at which point the JISA converts to an adult ISA. Both Cash and Stocks and Shares variants are available.
ISA flexibility: withdrawing and replacing
Some ISA providers offer flexible ISAs, which allow you to withdraw money and replace it in the same tax year without it counting as a new subscription. For example, if you have subscribed £15,000 and then withdraw £5,000, you can re-deposit that £5,000 later in the same year without using extra allowance. Not all providers offer this feature — check before opening.
Bed and ISA: moving existing investments tax-efficiently
If you hold shares or funds outside an ISA, you can sell them and immediately repurchase them inside an ISA — this is called a Bed and ISA. Any gain realised on the sale is subject to CGT in the year of the transaction, but the annual exempt amount (£3,000 in 2025-26) can offset it. Future growth inside the ISA is then permanently sheltered. This is a one-way door: once inside an ISA, growth is tax-free forever, but you can only move £20,000 per year.
ISA vs SIPP for retirement savings
| Feature | ISA | SIPP / Pension |
|---|---|---|
| Annual limit | £20,000 | £60,000 (annual allowance) |
| Tax relief on contributions | None | 20%–45% relief |
| Access age | Any age | Currently 55, rising to 57 in 2028 |
| Withdrawals taxed? | No | Yes (except 25% tax-free lump sum) |
| Inheritance tax | In estate | Outside estate (for now) |
| Employer contributions? | No | Yes |
For most people, the right answer is to combine both: maximise employer pension matching first (it is free money), use a pension for tax relief on further contributions, and use an ISA for accessible, flexible savings that you might need before retirement age.
Frequently asked questions
Can I pay into more than one ISA of the same type?
From 6 April 2024, the rules changed. You can now subscribe to multiple ISAs of the same type in the same tax year — for example, two different Cash ISAs. The total across all ISAs must still stay within £20,000. Previously, you were limited to one of each type per year.
What happens if I accidentally exceed the ISA allowance?
HMRC monitors ISA subscriptions and will contact you if you overpay. You will need to remove the excess and any interest or growth attributable to it. There is no penalty for a genuine error if you cooperate with HMRC promptly.
Is my ISA safe if my bank goes bust?
Cash ISAs with UK-regulated banks and building societies are covered by the FSCS up to £85,000 per institution. Stocks and Shares ISAs held with FCA-regulated platforms are covered up to £85,000 for claims arising from firm failure (though market losses are not covered). Check that your provider is FCA-authorised before investing.