An individual savings account (ISA) is a tax wrapper for savings and investments. Interest, dividends and capital gains inside it are free of UK income tax and capital gains tax, and you do not report them on a tax return. You must be 18 or over and UK resident to open one. In 2026/27 you can pay in up to £20,000 across all your ISAs. There are four adult types (cash, stocks and shares, innovative finance and Lifetime), plus the Junior ISA for children.
The four types of adult ISA
| Type | What it can hold | Key feature |
|---|---|---|
| Cash ISA | Bank and building society savings, some NS&I products | Tax-free interest |
| Stocks and shares ISA | Shares, unit trusts and investment funds, corporate and government bonds, long-term asset funds | Tax-free dividends and gains |
| Innovative finance ISA | Peer-to-peer loans, crowdfunding debentures, funds with long notice periods, cryptoasset exchange traded notes | Higher risk; transfers may be limited |
| Lifetime ISA | Cash, stocks and shares, or both | 25% government bonus, up to £1,000 a year |
The rules on cryptoasset exchange traded notes (ETNs) changed on 6 April 2026. They can no longer go into a stocks and shares ISA unless they were already held there before that date. They belong in an innovative finance ISA instead. Long-term asset funds moved the other way: they now belong in a stocks and shares ISA.
You cannot move shares you already own into an ISA, except shares from an employee share scheme. To shelter an existing holding, you have to sell it and buy it back inside the ISA. This is known as "bed and ISA".
Who can open one
- Age. You must be 18 or over. Since 6 April 2024 this applies to cash ISAs too; they could previously be opened at 16. A Lifetime ISA must be opened before your 40th birthday;
- Residence. You must be UK resident, or a Crown servant or armed forces member working overseas (or their spouse or civil partner);
- One owner. ISAs cannot be held jointly. Each spouse has their own allowance;
- National Insurance number. Providers ask for it when you open an account.
Since April 2024 you can pay into more than one ISA of the same type in a year. The total must stay within the annual limit. Our guide to the ISA allowance sets out how the £20,000 can be split, and the £12,000 cash ISA cap that applies to under-65s from April 2027.
What the tax exemption is worth
The exemption comes from the ISA Regulations, made under section 694 of the Income Tax (Trading and Other Income) Act 2005 and section 151 of the Taxation of Chargeable Gains Act 1992. How much it is worth depends on what you hold and your tax band.
- Cash. Outside an ISA, most basic and higher rate taxpayers already receive some interest tax-free through the personal savings allowance (£1,000 or £500). A cash ISA earns its keep once your interest exceeds that allowance, and always for additional rate taxpayers, who get no allowance. Two changes take effect in 2027/28: savings income outside an ISA will be taxed at 22%, 42% and 47% instead of 20%, 40% and 45% (Finance Act 2026, section 5), and anyone aged 64 or under at the end of the tax year will be limited to £12,000 a year in cash ISAs (SI 2026/1018). For 2026/27 the full £20,000 can still go into cash;
- Shares and funds. The dividend allowance is £500 and the capital gains tax annual exempt amount is £3,000. Above those, a stocks and shares ISA saves tax every year and never needs a capital gains computation. For long-term investors this is usually the bigger benefit;
- Paperwork. ISA income and gains are left off your Self Assessment return entirely.
Illustration only: a higher rate taxpayer holding £60,000 of funds that yield 3% receives £1,800 of dividends a year. Outside an ISA, £1,300 of that is above the £500 allowance and is taxed at the 35.75% dividend upper rate that applies from 2026/27 (Finance Act 2026, section 4, which also raised the ordinary rate to 10.75%), which is about £465 a year. Inside an ISA, the tax is nil. Any gain when the funds are sold is also tax-free.
Withdrawals, flexible ISAs and the Lifetime ISA
You can take money out of a cash, stocks and shares or innovative finance ISA at any time without losing the tax benefit on what remains, though the provider's terms may impose notice periods or charges. A withdrawal does not give back allowance, unless the ISA is flexible: then you can replace the cash in the same tax year without it counting as a new subscription.
The Lifetime ISA is the exception. You can withdraw without penalty only to buy a first home costing £450,000 or less (with a mortgage, and at least 12 months after your first payment), from age 60, or if you are terminally ill with less than 12 months to live. Any other withdrawal suffers a 25% charge. On £800 saved plus a £200 bonus, that means losing £250 of the £1,000, so you get back less than you paid in.
Moving abroad and what happens on death
If you stop being UK resident, you must tell your provider and you cannot pay in any more (unless you are a Crown employee overseas). The account stays open and its income and gains remain free of UK tax, although the country you move to may tax them under its own rules. You can pay in again once you return and become UK resident.
On death, an ISA becomes a "continuing account of a deceased investor". Income and gains stay tax-free until the executor closes it, the estate administration completes, or 3 years and 1 day after death, whichever comes first. The value still forms part of the estate for inheritance tax. A surviving spouse or civil partner can claim an extra allowance equal to the ISA's value. Our guide to ISAs and inheritance tax covers the estate position.
Junior ISAs
A Junior ISA is a cash or stocks and shares account for a UK-resident child under 18. A child can have one of each, and anyone can contribute up to £9,000 in total for 2026/27. The money belongs to the child. A parent or guardian manages the account until the child can take control at 16, and nothing can be withdrawn before 18, except where the child is terminally ill. At 18 it automatically becomes an adult ISA. A child cannot hold a Junior ISA and a Child Trust Fund at the same time. A trust fund can be transferred into a Junior ISA.
Primary sources: HMRC's guides to Individual Savings Accounts, the Lifetime ISA and Junior ISAs; the Individual Savings Account Regulations 1998; and the 2024 amending regulations. For moving an existing ISA, see our guide to ISA transfer rules.
Choosing between ISAs, pensions and taxable accounts depends on your tax band, timescale and estate plans. Acumon's private client tax team advises on how they fit together, and our child trust fund service helps families with older children's accounts.