Individual Savings Accounts

Suc­ces­sive gov­ern­ments, con­cerned at the rel­a­tive­ly low lev­el of sav­ings in the UK econ­o­my, have over the years intro­duced var­i­ous means by which indi­vid­u­als can save through a tax-free envi­ron­ment.

What is an Individual Savings Account (ISA)?

ISAs are tax-exempt sav­ings accounts avail­able to indi­vid­u­als aged 18 or over who are res­i­dent and ordi­nar­i­ly res­i­dent in the UK. ISAs are only avail­able to indi­vid­ual investors and can­not be held joint­ly.

Investment limits

The over­all annu­al sav­ings lim­it remains at £20,000 for 2026/27.

From 6 April 2027, the annu­al ISA cash lim­it will be set at £12,000, with­in the over­all annu­al ISA lim­it. This restric­tion will not apply for those over the age of 65, where the cash ISA lim­it will remain at £20,000.

Investment choices

Investors are allowed to invest in a cash ISA, an invest­ment ISA, an Inno­v­a­tive Finance ISA, a Life­time ISA (see below), or a com­bi­na­tion of the four, sub­ject to not exceed­ing the over­all annu­al invest­ment lim­it.

Investors are able to trans­fer their invest­ments from a stocks and shares ISA to a cash ISA (or vice ver­sa).

ISAs are allowed to invest in cash (includ­ing bank and build­ing soci­ety accounts and des­ig­nat­ed Nation­al Sav­ings), stocks and shares (includ­ing unit trusts, invest­ment funds and gov­ern­ment secu­ri­ties with at least five years to run) and life assur­ance.

A wide range of secu­ri­ties includ­ing cer­tain retail bonds with less than five years before matu­ri­ty, Core Cap­i­tal Deferred Shares issued by build­ing soci­eties, list­ed bonds issued by Co-oper­a­tive Soci­eties and Com­mu­ni­ty Ben­e­fit Soci­eties and SME secu­ri­ties that are admit­ted to trad­ing on a recog­nised stock exchange are eli­gi­ble to be held in an ISA, Junior ISA or Child Trust Fund (CTF).

The Inno­v­a­tive Finance ISA can be used for loans arranged via a peer-to-peer (P2P) plat­form. Peer-to-peer lend­ing is a small but rapid­ly grow­ing alter­na­tive source of finance for indi­vid­u­als and busi­ness­es. The Inno­v­a­tive Finance ISA may also invest in debt secu­ri­ties offered via crowd­fund­ing plat­forms. Exist­ing peer-to-peer loans or crowd­fund­ing deben­tures can­not be trans­ferred into Inno­v­a­tive Finance ISAs.

Withdraw and replace monies

Mon­ey can be with­drawn from an ISA with­out any of the tax ben­e­fits being lost. ISA savers may be able to with­draw and replace mon­ey from their cash ISA with­out it count­ing towards their annu­al ISA sub­scrip­tion lim­it for that year where they hold a ‘Flex­i­ble ISA’.

Additional ISA allowance for spouses on death

An addi­tion­al ISA allowance is avail­able for spous­es or civ­il part­ners when an ISA saver dies. The addi­tion­al ISA allowance is equal to the val­ue of a deceased per­son­’s accounts at the time of their death or when they are closed and is in addi­tion to the nor­mal ISA sub­scrip­tion lim­it. There are time lim­its with­in which the addi­tion­al allowance has to be used. In cer­tain cir­cum­stances an indi­vid­ual can trans­fer to their own ISA non-cash assets such as stocks and shares pre­vi­ous­ly held by their spouse.

In most cas­es, it is envis­aged that the addi­tion­al allowance will be used to sub­scribe to an ISA offered by the same finan­cial insti­tu­tion that pro­vid­ed the deceased per­son­’s ISA. As the rules allow the trans­fer of stocks and shares direct­ly into the new ISA, in many cas­es the effect will be that the invest­ments are left intact and the spouse becomes the new own­er of the deceased per­son­’s ISA.

The tax advan­taged treat­ment of ISAs con­tin­ues whilst an indi­vid­u­al’s estate is in admin­is­tra­tion.

Tax advantages

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.

Any ISAs held on death will form part of a per­son­’s estate for inher­i­tance tax pur­pos­es.

The halv­ing of the div­i­dend allowance from £1,000 to £500 in 2024/25 and the reduc­tion in the CGT annu­al exempt amount from £6,000 to £3,000 in 2024/25, make ISA accounts more attrac­tive for tax effi­cient share invest­ments going for­ward.

Uses of an ISA

Many peo­ple use an ISA in the first instance to save for a rainy day. Since they were first intro­duced peo­ple have used them to save for retire­ment, to com­ple­ment their pen­sion plans or to save for future repay­ment of their mort­gage to give just a few exam­ples. We have known young peo­ple, wary of com­mit­ment to long-term sav­ing start an ISA and when more cer­tain of the future use it as a lump sum to start anoth­er finan­cial plan.

Help to Buy ISA

The Help to Buy ISA, which pro­vides a tax-free sav­ings account for first time buy­ers wish­ing to save for a home.

Help to Buy ISA accounts were avail­able until 30 Novem­ber 2019, when this type of account was with­drawn for new savers. Those indi­vid­u­als that already have an account can keep sav­ing until 30 Novem­ber 2029, when accounts will close to addi­tion­al con­tri­bu­tions. An indi­vid­ual must claim their bonus (see below) by 30 Novem­ber 2030.

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.

Help to Buy ISAs are sub­ject to eli­gi­bil­i­ty rules and lim­its:

• An indi­vid­ual was only eli­gi­ble for one account through­out the life­time of the scheme and it was only avail­able to first time buy­ers.
• Inter­est received on the account will be tax-free.
• Sav­ings are lim­it­ed to a month­ly max­i­mum of £200. There was an oppor­tu­ni­ty to deposit an addi­tion­al £1,000 when the account was first opened.
• The gov­ern­ment will pro­vide a 25% bonus on the total amount saved includ­ing inter­est, capped at a max­i­mum of £3,000 which is tax-free.
• The bonus will be paid when the first home is pur­chased.
• The bonus can only be put towards a first home locat­ed in the UK with a pur­chase val­ue of £450,000 or less in Lon­don and £250,000 or less in the rest of the UK.
• The gov­ern­ment bonus can be claimed at any time, sub­ject to a min­i­mum bonus amount of £400.
• The accounts are lim­it­ed to one per per­son rather than one per home so those buy­ing togeth­er can both receive a bonus.

Lifetime ISA

A Life­time ISA is avail­able for adults under the age of 40. Indi­vid­u­als are able to con­tribute up to £4,000 per year and receive a 25% bonus (up to £1,000 per year) on the con­tri­bu­tions from the gov­ern­ment, up until the age of 50. Funds, includ­ing the gov­ern­ment bonus, can be used to buy a first home at any time from 12 months after mak­ing the first pay­ment into the Life­time ISA, can be with­drawn from age 60 com­plete­ly tax-free, or where the account hold­er is ter­mi­nal­ly ill (with less than 12 months to live).Where the funds are with­drawn for any oth­er rea­son than those list­ed above, they will have to pay a 25% charge (claw­back of the gov­ern­ment bonus).

The Life­time ISA can be used to invest in cash or stocks and shares, or have a com­bi­na­tion of both.

Fur­ther details of the Life­time ISA are as fol­lows:

• The annu­al £4,000 allowance will form part of a per­son­’s total ISA annu­al allowance of £20,000.
• Over a life­time of con­tribut­ing to the ISA, a per­son can save up to £128,000 and receive up to £32,000 of gov­ern­ment bonus.
• From a per­son­’s 50th birth­day, no fur­ther con­tri­bu­tions are allowed and no gov­ern­ment bonus is avail­able, although the account will con­tin­ue to earn inter­est or invest­ment returns.
• The sav­ings and bonus can be used to buy a home worth up to £450,000 any­where in the coun­try. Addi­tion­al­ly, the prop­er­ty must be pur­chased with a mort­gage and a con­veyancer or solic­i­tor must be act­ing for you on the pur­chase. Two first-time buy­ers can both use their Life­time ISAs, pro­vid­ed the oth­er con­di­tions are still met.
• An indi­vid­ual that has a Help to Buy ISA may trans­fer those sav­ings into a Life­time ISA, or con­tin­ue sav­ing into both. How­ev­er, only the bonus from one account can be used to buy a house.

The gov­ern­ment announced in Autumn Bud­get 2025 that a new, sim­pler ISA prod­uct would be devel­oped to sup­port first time buy­ers and will replace the Life­time ISA. A con­sul­ta­tion will be pub­lished in ear­ly 2026.

Junior Individual Savings Account (Junior ISA)

Junior ISAs are avail­able for UK res­i­dent chil­dren under the age of 18 who do not have a CTF account. Junior ISAs are tax advan­taged and have many fea­tures in com­mon with ISAs. They can be cash or stocks and shares based prod­ucts. The annu­al sub­scrip­tion lim­it for Junior ISA and CTF accounts remains at £9,000 for 2026/27. When a child turns 18, the Junior ISA auto­mat­i­cal­ly con­verts into an adult ISA.

A trans­fer of sav­ings from a CTF to a Junior ISA is per­mit­ted at the request of the reg­is­tered con­tact for the CTF.

The CTF scheme closed in 2011. CTF accounts start­ed to mature in Sep­tem­ber 2020 when the first qual­i­fy­ing chil­dren reached 18. With­out reg­u­la­to­ry change the invest­ments would lose their tax advan­taged sta­tus. CTF and ISA reg­u­la­tions have there­fore been made which:

• make sure that invest­ments in CTF accounts retain their tax advan­taged sta­tus post matu­ri­ty, pend­ing instruc­tions from the account hold­er
• allow sav­ings trans­ferred from a matured CTF to be dis­re­gard­ed for the annu­al ISA sub­scrip­tion lim­it.