What is an ISA and how does it work?

An ISA is not an investment in itself. It is a type of account with special tax rules. Whatever you hold inside it, whether cash or investments, is sheltered from UK tax.

You pay no Income Tax on interest earned in an ISA, and no tax on income (such as dividends) or capital gains (profits when an investment is sold for more than it cost) from investments held in an ISA. If you fill in a tax return, you do not need to declare any of it.

ISAs do not close when the tax year ends. The money stays tax-free for as long as it stays inside the ISA.

There are four types of ISA for adults, plus the Junior ISA for children under 18.

The ISA allowance is the most you can pay into ISAs in one tax year. For 2026/27 it is £20,000. The UK tax year runs from 6 April to 5 April the following year, so the current one runs from 06/04/2026 to 05/04/2027.

You can put the whole allowance into one ISA or split it across several. Money paid into a Lifetime ISA (up to £4,000 a year) counts towards the £20,000. For example, GOV.UK shows £11,000 in a cash ISA, £2,000 in a stocks and shares ISA, £3,000 in an innovative finance ISA and £4,000 in a Lifetime ISA in the same year.

Any allowance you do not use by the end of the tax year is lost. It cannot be carried forward. At Budget 2025 the government said the £20,000 allowance, the £4,000 Lifetime ISA limit and the £9,000 Junior ISA limit will stay the same until 05/04/2031.

Since 06/04/2024 you can pay into more than one ISA of the same type in the same tax year, as long as the total stays within £20,000. For example, £10,000 in one cash ISA, £3,000 in another cash ISA and £7,000 in a stocks and shares ISA.

Providers cannot see what you pay in elsewhere, so keeping the total within the allowance is your responsibility.

You can take money out of a cash, stocks and shares or innovative finance ISA at any time without losing the tax benefits on what remains. Some accounts have their own rules or charges for withdrawals, which are set out in their terms. Different rules apply to the Lifetime ISA.

Normally, money you take out does not give you back any allowance. If an ISA is “flexible”, you can take cash out and put it back in during the same tax year without it counting towards that year’s allowance. Your provider can tell you whether an ISA is flexible.

GOV.UK gives this example: you pay £10,000 into an ISA in 2026/27 and then take out £3,000. If the ISA is flexible, you can still pay in £13,000 that year (the £10,000 of allowance left plus the £3,000 you took out). If it is not flexible, you can pay in £10,000.

You can move all or part of an ISA to another provider at any time, to the same type of ISA or a different one, including money paid in this year or in earlier years. There are restrictions for Lifetime ISAs and Junior ISAs, and some providers charge for transfers.

To move an ISA, you contact the provider you want to move to and complete its ISA transfer form. If you withdraw the money yourself and pay it into a new ISA, it counts as a new payment: GOV.UK states you will not be able to reinvest that part of your tax-free allowance again. Money moved by a proper transfer is not a new payment and does not use this year’s allowance.

Transfers should take no longer than 15 working days between cash ISAs and 30 calendar days for other types. If a transfer takes longer, you can complain to the provider and then to the Financial Ombudsman Service.

From 06/04/2027, money in a stocks and shares ISA or innovative finance ISA cannot be transferred into a cash ISA unless you are 65 or over by the end of that tax year. Moving money from a cash ISA into a stocks and shares ISA will still be allowed.

You must be 18 or over to open an adult ISA (and under 40 for a Lifetime ISA). You must be resident in the UK, or be a member of the armed forces or a Crown servant working overseas (or their spouse or civil partner). You need your National Insurance number, and ISAs cannot be held jointly.

If you move abroad and stop being UK resident, you must tell your provider. You can keep the ISA open and it stays tax-free in the UK, but you cannot pay into it until you are UK resident again (Crown employees working overseas and their spouses or civil partners are an exception).

Cash in a cash ISA with a UK-authorised bank, building society or credit union is protected by the Financial Services Compensation Scheme (FSCS) up to £120,000 per person, per firm, if that firm fails. This limit covers all your deposits with that firm together, not each account.

Investments in a stocks and shares ISA can fall in value. The FSCS can pay up to £85,000 per person, per firm, if an authorised investment firm fails and cannot return your money or investments, but it does not cover losses from investments going down.

Capital at risk. Past performance is not a guide to future returns. The value of investments can fall as well as rise.

Cash ISA limit from 06/04/2027: the Individual Savings Account (Amendment) (No. 2) Regulations 2026 were made on 10/09/2026 and come into force on 06/04/2027. From that date, people aged 64 or under at the end of the tax year can pay no more than £12,000 a year into cash ISAs. People aged 65 or over keep a £20,000 cash ISA limit. The overall ISA allowance stays at £20,000. The details are in the cash ISA guide.

Lifetime ISA replacement: the government has said a new, simpler First Time Buyer ISA will be offered in place of the Lifetime ISA once it is available. Until then Lifetime ISAs can still be opened and paid into under the current rules. The new product’s limits, bonus and launch date have not been set; see the Lifetime ISA guide.

National Insurance number: from 06/04/2027, any ISA receiving a payment will need a National Insurance number, or a declaration from the investor that they are not eligible for one.

Whether a cash, stocks and shares, innovative finance or Lifetime ISA fits a particular situation depends on things like when the money might be needed, how much risk of loss is acceptable and other savings or debts. MoneyHelper offers free, impartial guidance, and a regulated financial adviser can give personal advice for a fee.

Tax treatment depends on individual circumstances and tax rules can change.