ISA types and the 2025/26 allowances

An ISA (Individual Savings Account) is a tax wrapper that shelters your savings or investments from income tax on interest and capital gains tax on growth. The annual ISA allowance for 2025/26 is £20,000 per person. Interest earned inside an ISA is completely tax-free — now and in the future.

ISA Type2025/26 AllowanceKey FeatureWho For
Cash ISA£20,000Tax-free interest on cash savingsEveryone 18+
Stocks & Shares ISA£20,000Tax-free growth & dividends on investmentsEveryone 18+
Lifetime ISA (LISA)£4,000 (within £20k)25% government bonus (max £1,000/yr)18–39, first home or retirement
Innovative Finance ISA£20,000P2P lending, tax-free interestEveryone 18+
Junior ISA£9,000Tax-free savings for under-18sUnder 18
2025/26 Personal Savings Allowance

Basic rate taxpayers: £1,000 of savings interest tax-free  ·  Higher rate taxpayers: £500  ·  Additional rate taxpayers: £0. Interest beyond these limits is taxed at your marginal income tax rate.

The Lifetime ISA — the 25% bonus explained

The LISA is one of the most powerful savings tools available to under-40s in the UK. You can save up to £4,000 per year and the government adds a 25% bonus — up to £1,000 per year — on top. The money can only be used for either a first home purchase (property up to £450,000) or retirement (from age 60).

If you withdraw for any other reason, you pay a 25% withdrawal penalty — which effectively claws back the government bonus and takes a small amount of your own savings too. So the LISA should only be used if you’re confident you’ll use it for its intended purposes.

For a first-time buyer saving toward a deposit, a LISA is typically more valuable than a cash ISA on the same money, as the 25% bonus significantly accelerates growth toward the deposit target.

Cash ISA vs Stocks & Shares ISA

A Cash ISA pays a fixed or variable interest rate on your balance, similar to a savings account but with tax-free interest. They are low risk and suitable for shorter-term goals (1–5 years) or an emergency fund.

A Stocks & Shares ISA invests your money in the stock market. Returns are not guaranteed and your capital can fall in value, but historically equity returns over long periods (10+ years) significantly outperform cash savings. For money you won’t need for 10 or more years, a Stocks & Shares ISA is typically the better long-term vehicle.

The key rule: if you’ll need the money within 5 years, use cash. If it’s 10+ years away, use equities.

Frequently asked questions

Can I pay into multiple ISAs in the same tax year?
From April 2024, you can now pay into multiple ISAs of the same type in the same tax year — for example, two different Cash ISAs. Previously you were restricted to one of each type per year. The overall £20,000 annual allowance still applies across all your ISAs combined. The LISA has its own sub-limit of £4,000 within that £20,000.
What happens to my ISA allowance if I don’t use it?
The annual ISA allowance cannot be carried forward. If you don’t use your £20,000 in 2025/26, it’s lost — you can’t add it to next year’s allowance. However, once money is inside an ISA, it stays there indefinitely and continues to grow tax-free even after the tax year ends. The ISA wrapper itself doesn’t expire.
Can I transfer an ISA without losing the allowance?
Yes — ISA transfers between providers don’t count against your annual allowance. You can transfer a Cash ISA to a Stocks & Shares ISA (or vice versa) and the money retains its tax-free status. You must use the official transfer process (not withdraw and redeposit) to preserve the ISA status. Always instruct the receiving provider to initiate the transfer, rather than withdrawing cash yourself.
Is ISA interest included in my Personal Savings Allowance?
No — ISA interest is completely separate from and does not count toward your Personal Savings Allowance (PSA). The PSA covers interest from regular savings accounts, bank accounts, and bonds outside of ISAs. ISA interest is always 100% tax-free regardless of the amount and regardless of your tax band.
What is the best cash ISA rate available now?
Cash ISA rates change frequently. As of early 2026, competitive easy-access Cash ISA rates are available at around 4–4.5% AER from challenger banks and building societies. Fixed-rate Cash ISAs for 1–2 years are offering similar rates. For the most current best-buy rates, check independent comparison sites such as MoneySavingExpert or Which?, which update regularly.