An ISA is a tax-free savings account. When your money is inside an ISA you do not need to pay Capital Gains tax on investment growth, and you also don’t need to pay income tax on interest, dividends, or when you withdraw the money.


There are multiple different types of ISAs available. The most relevant ones are usually:

  • Stocks & Shares ISAs (for investments)
  • Cash ISAs (like bank savings accounts)
  • Lifetime ISAs (for first time homebuyers and/or retirement savings – these can be Cash or Stocks & Shares)

Because ISAs offer significant tax perks, there are some limits on how much you can put in them. They can seem a bit fiddly until you get used to them – we hope this guide helps.

  • You can put up to £20,000 each tax year into your ISAs – this is known as your ‘ISA allowance’. The tax year runs from 6 April to 5 April.
  • Your allowance is shared across all types of ISAs. If you put £20,000 in a S&S ISA, you have £0 allowance left this year for a LISA or Cash ISA.
  • Your allowance resets every year. It is use it or lose it. If you have some allowance left in a year, you cannot carry it over to the next.
  • Only new contributions count towards your allowance. Growth, dividends and interest within the ISA do not use up your allowance, neither does buying and selling within your ISA. Transfers between ISAs do not use up your allowance.
  • You can only contribute to one ISA of each type per tax year (e.g. you can’t pay into two different S&S ISAs in the same year).
  • You can keep the same ISA open and contribute to it for multiple tax years.

ℹ️ Putting money into an ISA, from anywhere other than an ISA, is known as ‘contributing’ or ‘subscribing’ to an ISA.

ISA types explained

Stocks & Shares (S&S) ISA 📈

When you invest within a S&S ISA, any capital gains from these investments will be free of Capital Gains Tax, and any income payments or dividends will be free of income tax.

This makes S&S ISA the starting point for investing in the UK. It only makes sense to invest in a General (taxable) Investment Account if you have already filled your ISA.

See further information on: Investing 101, index funds, and choosing a broker to open an account with.

My portfolio is too small to pay Capital Gains Tax – should I still use an ISA?

In short: yes.

  • There’s no advantage to using a General Investment Account. It’s not usually any cheaper than an ISA.
  • Your portfolio will grow over time and may become subject to capital gains tax in the future.
  • ISA allowances are use it or lose it.
  • If you have a taxable account it’s your responsibility to maintain solid records, calculate your own tax liability, keep track of tax laws changes, etc. All this hassle is avoided inside an ISA.

Use GIAs as overflow if you run out of ISA allowance.

Cash ISA 💷

Cash ISAs tend to offer slightly lower rates than bank savings accounts, but all interest earned is tax-free.

With higher interest rates now available, this is potentially a consideration especially for people with higher savings balances.

You only need to pay tax on interest earned above your Personal Savings Allowance (PSA). Basic-rate taxpayers have a PSA of £1,000, meaning the first £1,000 they receive in savings interest is tax-free. Higher-rate taxpayers have a PSA of £500, and additional-rate taxpayers don’t have any. For interest earned beyond your PSA, you will pay income tax at your usual rates.

This means that at an interest rate of 3.5%, a basic-rate taxpayer would need to have about £30,000 saved before the interest earned would exceed their PSA, and a higher-rate taxpayer would need £15,000.

In contrast, interest earned in an ISA is completely tax free, and will not use up your Personal Savings Allowance. This means that if you have enough savings to exceed your PSA, a Cash ISA could potentially be more efficient for you even at a lower interest rate.

This will depend on your income tax bracket, how much you have saved, and what interest rates are available. MoneySavingExpert maintain up-to-date lists of the best cash ISAs and savings accounts you can refer to.

If you are saving large amounts in cash you may also want to consider Premium Bonds, which are offered by NS&I (the UK Government’s bank) and available for up to £50,000 savings per person. Instead of paying a set interest rate on your balance, each £1 you have in Premium Bonds is entered into a monthly lottery and has a (small!) chance of winning ‘prizes’ from £25 upwards. These prizes average out to the equivalent of an interest rate, especially for larger balances.

Premium Bond winnings are tax-free, so much like a Cash ISA are more attractive to higher earners. See moneysavingexpert’s page on Premium Bonds for some calculations based on current prize rates.

Lifetime ISA (LISA) and Help to Buy ISA (H2B ISA) 🏠

Lifetime ISAs are designed to help first time buyers saving up for a deposit. Both Cash and S&S LISAs are available. You can put up to £4,000 into a LISA per year, and receive a “bonus” of 25% of your contribution. So if you contribute £4,000, you will receive a £1,000 bonus taking your account to £5,000. They can also be used to save for retirement, although a pension is usually more cost effective.

We have a complete LISA article with much more detail.

Help to Buy ISAs are the scheme which preceded LISA. You can no longer open new H2B ISAs, but some savers may still hold them. The H2B ISA counts as a Cash ISA, so you can’t subscribe to a Cash ISA in the same year you pay into a H2B ISA. More information on the LISA wiki page.

Innovative Finance ISA (IFISA) 🤝

⚠️  Your capital is fully at risk in a IFISA!
There is currently no Financial Services Compensation Scheme protection for peer-to-peer lending. In the event that your platform goes bust or the underlying borrowers default you will not recieve compensation.

This is an ISA specifically intended for peer-to-peer (P2P) lending.

P2P lending proceeds are currently taxed as income. This means that for those already utilising these platforms the IFISA appears to be useful, however P2P lending is often critised of having an unsatisfactory risk-adjusted return and poor liquidity.

Despite lending platforms advertising enticing interest rates, these are a best-case scenario before losses and as such these products should never be treated like a cash savings account – only invest money you can afford to lose.

Junior ISA (JISA) 🧒

A Junior ISA can be opened for anybody under age 18 by a parent or guardian. It can either be Cash or Stocks & Shares, and replaced ‘Child Trust Funds’. The annual JISA contribution limit is £9,000 as of April 2020.

For more information on Junior ISAs see our page on investing for children.

Contributions and transfers

Contributions 💳

There is an overall contribution limit of £20,000 to all ISA types. (With the exception of Junior ISAs, which confusingly have a separate limit – it is technically possible for a 16 year old to put £9,000 in a JISA and £20,000 in a cash ISA).

You can save:
- £16,000 in a stocks and shares ISA
- £4,000 in a Cash LISA (picking up an additional £1,000 bonus)
For a total of £20,000 in that tax year.

You can only put money into one of each type of ISA each tax year (so you can only contribute to one S&S ISA in each tax year, one Cash ISA, etc).

What happens when a new tax year starts?

Your ISAs won’t close when the tax year finishes. You can keep contributing to your existing ISAs across multiple tax years. You’ll keep your savings on a tax-free basis for as long as you keep the money in your ISA accounts.

Transferring an existing ISA 🚚

You can transfer your ISA from one provider to another at any time. Transfers between ISAs do not count as new contributions and do not use up your allowance.

To count as a transfer you must follow the proper process. This means contacting the new provider and asking them to transfer in the other ISA. Withdrawing from one ISA into your bank account and contributing to another does not count as a transfer – it will use the current year’s allowance.

For previous years ISAs, you can choose to transfer all or part of your savings. If you want to transfer the current year’s contributions to a different ISA you must transfer all of it. You may then carry on contributing to the new ISA, once the transfer has completed (this is the only time it is possible to contribute to two ISAs of the same type in the same tax year).

You can transfer to a brand new ISA, or one which is already open. You can transfer between different types of ISA, as detailed below.

ISA typeContribution Limits per tax year
(as at 2023/24)
Can transfer to…
Stocks & Shares ISA£20,000S&S ISA
Cash ISA
Cash ISA£20,000S&S ISA
Cash ISA
LISA (cash or Stocks & Shares)£4,000 excluding bonusS&S ISA (subject to exit charge)
Cash ISA (subject to exit charge)
S&S or Cash LISA
H2B ISA£1,200 upfront, £200 per month (£3,600 year 1, £2,400 later years), all excluding bonus.
H2B ISAs count as Cash ISAs so you cannot contribute to a H2B and Cash ISA in the same year.
LISA (up to £4000)
IFISA£20,000Cash ISA
Junior ISA (cash or Stocks & Shares)£9,000 (not counted in overall £20,000 limit)None. Automatically converts to Cash or S&S ISA on 18th birthday, doesn’t count as a new contribution in that year.

ISA Flexibility ↔️

Some providers offer “Flexible ISAs”. The rules allow you to withdraw any amount from a flexible ISA and retain the ISA wrapper as long as it’s put back into an ISA within that tax year.

Withdraw £100,000 from your flexible Stocks & Shares ISA to temporarily cover the purchase of an investment property, whilst you wait for lending to be approved.
For the rest of that tax year the ISA account has a temporary increase to its contribution limit of £100,000. You could return some or all of the funds to the ISA within that tax year.


Should I use an ISA, LISA or a pension?

See our ISA vs LISA vs pension comparison for more details.

What happens to an ISA if I move to another country?

If you are not UK Tax Resident then you cannot make new contributions to an ISA. You can still move money within your ISA and you do not have to pay tax on it in the UK.

ISAs may not have any tax protection in other countries and may be considered to be taxable savings accounts. You may therefore need to declare dividends, income and gains in the country in which you are tax resident.

What happens to an ISA on death?

ISA money isn’t free of inheritance tax. On death, the funds are considered part of your estate. If somebody dies leaving a surviving spouse or civil partner, the survivor inherits an “Additional Permitted Subscription” allowance equal to the ISA values held on the date of death. This isn’t quite the same as inheriting ISAs, but it is close.

Further reading 📚