Key takeaways
- Interest, dividends and capital gains earned within an Individual Savings Account (ISA) are generally free from UK Income Tax, Dividend Tax and Capital Gains Tax (CGT)
- From 6 April 2027, the annual Cash ISA subscription limit is proposed to reduce to £12,000 for investors under age 65, while the overall adult ISA limit remains £20,000
- Investors aged 65 and over will retain a £20,000 Cash ISA limit from the start of the tax year in which they turn 65
- Anti-circumvention rules are expected to restrict transfers from Stocks & Shares ISAs and Innovative Finance ISAs into Cash ISAs for investors under age 65, introduce a 22% charge on interest paid on cash held in non-cash ISAs, and prevent non-cash ISA portfolios being made up entirely of money market funds
- The value of an ISA at the date of death forms part of the deceased investor’s estate for IHT purposes, although Additional Permitted Subscription (APS) rules may allow a surviving spouse or civil partner to preserve the ISA wrapper
Individual Savings Accounts (ISA)
ISAs are a tax efficient and flexible way for individuals to invest money. The UK Government sets the maximum amount that can be invested in an ISA each tax year.
The types of ISAs available to open in tax year 2026/27 are:
- Stocks & Shares ISA
- Cash ISA
- Lifetime ISA (LISA)
- Innovative Finance ISA (IFISA)
- Junior ISA (JISA)
Help to Buy ISAs have not been available to open since 30 November 2019, however existing Help to Buy ISA investors are able to continue making contributions until 30 November 2029. They can claim the 25% Government bonus until November 2030 when purchasing a first home.
Summary
Cash ISA | Stocks & Shares ISA | Lifetime ISA2 | Innovative Finance ISA | Junior ISA | |
|---|---|---|---|---|---|
Age that can open account | 18 + | 18 + | 18 to 39 | 18 + | Under 18 |
Annual contribution limit1 | £20,0003 | £20,000 | £4,000 | £20,000 | £9,000 |
Investment type | Cash | Stock market related investments | Cash or Stock market related investments | Peer-to-Peer loans | Cash or Stock market related investments |
UK Government bonus | No | No | Yes | No | No |
Eligibility to invest in an ISA
As of April 2026, the investor must be 18 or over to open an adult ISA – Stocks & Shares ISA, Cash ISA, Lifetime ISA, and Innovative ISA.
If the investor is opening a Lifetime ISA, they must also be under 40.
The Junior ISA is for children under 18.
To be eligible to open an ISA the investor must also be either:
- resident in the UK for tax purposes or
- a member of the armed forces or a Crown servant (for example diplomatic or overseas Civil Service) or their spouse or civil partner, if they do not live in the UK
If no longer resident in the UK, the investor cannot make further contributions to the ISA, but it does remain in force and retain tax benefits.
An ISA cannot be held in joint names with another person and ISA products are not available to trustees and cannot be gifted to trusts or individuals.
Taxation of an ISA
The Interest, Dividends and Capital Gains earned within an ISA are not subject to UK Income Tax, Dividend tax or Capital Gains tax (CGT).
As a result, income received, and gains made on an ISA do not have to be disclosed on the investor’s HMRC tax returns and do not count towards any of the income definitions that determine their:
- Personal Allowance
- Pensions Tapered Annual Allowance
- Child Benefit Tax Charge
From 6 April 2027, ISA income and gains are expected to remain tax-free for the investor. However, under the proposed anti-circumvention rules, a 22% charge will apply to interest or alternative finance returns paid on cash held within a Stocks & Shares ISA or Innovative Finance ISA.
The charge will be paid by the ISA manager to HMRC and should not require the individual investor to report ISA interest on their tax return.
ISA Contribution limits
The annual contribution limit for adult ISAs is £20,000 in the tax year 2026/27. The overall adult ISA limit is expected to remain at this level until April 2031, although the Cash ISA subscription limit is expected to reduce for investors under age 65 from 6 April 2027.
From April 2024, there has no longer been the restriction of only being permitted to invest in one adult ISA per tax year. Investors can therefore contribute to one type of ISA account or split the annual allowance across multiple ISA accounts per year.
From 6 April 2027, the proposed annual Cash ISA subscription limit will be £12,000 for investors under age 65 and £20,000 for investors aged 65 and over. The higher age 65 limit applies from the start of the tax year in which the investor turns 65.
The proposed anti-circumvention rules are intended to stop investors using Stocks & Shares ISAs or Innovative Finance ISAs as a way of holding large cash balances tax-free or subsequently moving those balances into Cash ISAs.
The key measures are:
- a 22% charge on interest paid on cash held in non-cash ISAs
- a restriction on transfers from non-cash ISAs into Cash ISAs for investors under age 65 and
- a rule that a non-cash ISA portfolio cannot be made up entirely of money market funds.
- Diversified portfolios may still include some cash-like exposure.
From tax year 2027/28, Peter is age 45 and has a £20,000 overall adult ISA allowance. Because he is under 65, no more than £12,000 can be subscribed to Cash ISA in the tax year. He could contribute:
- £12,000 into a Cash ISA, £5,000 into a Stocks & Shares ISA and £3,000 into an Innovative Finance ISA or
- £11,000 into a Stocks & Shares ISA, £2,000 into a Cash ISA, £3,000 into an Innovative Finance ISA and £4,000 into a Lifetime ISA or
- £7,000 into one Cash ISA, £5,000 into another Cash ISA and £8,000 into a Stocks & Shares ISA.
Within the annual contribution limit, investors are eligible to contribute into one Lifetime ISA in a tax year. The maximum annual Lifetime ISA contribution is £4,000. Please note that the Government will consult on introducing a new, first time buyer only product that will provide a bonus when a person uses it to buy a house.
The maximum annual contribution for a Junior ISA is £9,000.
Some providers will offer a Flexible ISA (see section below). A Flexible ISA allows any investment amount withdrawn in the tax year to be replaced in the same tax year, without affecting the overall contribution limit.
The investor can make contributions into an ISA with a lump sum, a regular monthly contribution, or a combination of both. However, any unused annual contribution amount cannot be carried forward into the next financial year.
It is generally not possible to transfer ordinary shares or collectives held into an ISA. These will need to be disposed of, and therefore subject to CGT, and the cash proceeds invested in an ISA.
ISA Type
Stocks & Shares ISA
A Stocks & Shares ISA is a saving account that allows individuals to invest in a wide range of assets, including Shares, OEIC/Unit Trusts funds, Investment Trusts and other types of investments.
Some of the main qualifying investments purchased, made, or held in a Stocks & Shares ISA are:
- Shares – listed on recognised stock exchange, including AIM shares
- Securities issued by companies – Corporate Bonds
- Government securities – Gilts
- Units or shares in a UK undertaking for collective investments in transferable securities (UCITS) – Unit Trust
- Units or shares in a qualifying non-UCITS retail scheme – OEIC
- Shares and securities in qualifying Investment Trusts & ETF’s
- Units or shares in a recognised UCITS – OEIC
- Shares emerging from a Schedule 3 Save As You Earn (SAYE) option scheme or a Schedule 2 Share Incentive Plan (SIP)
- Cash
From April 2027, cash can still be held within a Stocks & Shares ISA where this is part of normal investment activity, for example while awaiting investment or meeting withdrawals. However, interest paid on cash held in a non-cash ISA is expected to be subject to a 22% charge paid by the ISA manager. A Stocks & Shares ISA portfolio made up entirely of money market funds will also be treated as non-qualifying under the proposed rules.
Cash ISA
A Cash ISA is a savings account that allows the investor to earn interest free from UK Income Tax. From 6 April 2027, the maximum annual Cash ISA subscription is proposed to be £12,000 for investors under age 65 and £20,000 for investors aged 65 and over.
Cash ISAs are typically offered by providers such as Banks and Building Societies, or National Savings & Investment products (NS&I).
A Cash ISA works similarly to a Bank or Building Society savings account or high interest current account, offering the investor a rate of interest to invest with them.
Providers of Cash ISAs can offer fixed or variable rates of interest, as well as various levels of access to accounts. In many cases, the longer the investor commits to investing, the higher the rate of interest they will be eligible to receive, due to the more restricted access.
Innovative Finance (IFISA)
The Innovative Finance ISA is designed to allow the investor to lend all or some of their ISA annual allowance through Peer-to-Peer (P2P) lending and crowdfunding, free of income tax and CGT.
P2P lending is a form of investing where the investor lends money directly to borrowers and businesses by using an online portal for the exchange of cash. Investors are matched up with borrowers, which could be a business, an individual or a property developer.
The borrowers then pay back the borrowed amount, with interest. The interest paid is the return the investor receives on the investment. The interest received is tax free.
An Innovative Finance ISA works like a loan therefore there are several specific risks that are in addition to that of investments made in other ISA options:
- Default: As the Innovative Finance ISA works like a loan there is a chance the borrowers could default on their repayments, the interest paid to the investor.
- Slow cash withdrawal: If the investor wants to withdraw money from the Innovative Finance ISA, the process can be slow, and they may have to wait some time before accessing their money.
No Financial Services Compensation Scheme (FSCS) protection: Innovative Finance ISAs are not protected under FSCS. This means the investors’ money could be at risk if they invest with an Innovative Finance ISA online portal that goes out of business.
Lifetime (LISA)
The Lifetime ISA is aimed to help first time buyers purchase a residential property, up to the value of £450,000.
As noted previously the UK Government are set to consult on the implementation of a new, simpler ISA product to support first time buyers to buy a home. Once available, this new product will be offered in place of the Lifetime ISA and the eligibility rules may be altered from the current regime.
Currently the eligibility rules for a LISA is that the applicant must be aged between 18 and 39, and contributions to the Lifetime ISA must stop when the investor reaches age 50. The maximum annual contribution is £4,000 and the ISA can be either Cash or Stocks & Shares.
The UK Government adds a bonus of up to 25% of the amount invested each year. The bonus is up to a maximum of £1,000 per year.
The investor can withdraw money from the Lifetime ISA if any of the following criteria apply:
- buying first home
- aged 60 or over
- terminally ill, with less than 12 months to live
If one of the above criteria is not met on withdrawal, a 25% withdrawal charge applies to the amount withdrawn. This recovers the Government bonus and may also reduce the investor’s own savings.
Reclaiming bonus on a Lifetime ISA
Assuming no growth, if the investor contributed £8,000 in the Lifetime ISA, then this will earn a 25% UK Government bonus of £2,000. Giving an investment value of £10,000.
If the investor withdrew the entire investment value, without meeting any of the withdrawal criteria, a 25% charge will apply to the full £10,000. The investor would therefore have to pay a UK Government withdrawal charge of £2,500.
Leaving the investor with £7,500 invested.
Junior ISA (JISA)
A Junior ISA is a tax efficient way of saving for a child.
A parent or guardian (registered contact) opens the Junior ISA, who is then responsible for managing the investment. The registered contact however is not the owner of the Junior ISA, as the investment belongs to the child. Contributions into a Junior ISA are not limited to a parent or guardian, as other family members or unrelated individuals can also contribute.
The Junior ISA can be either be invested in Cash or Stocks & Shares, with a maximum contribution limit of £9,000 per year.
Through the period of holding the Junior ISA the child can only hold up to two Junior ISAs (with no more than one of each type).
Contributions can be made into both types of Junior ISAs in the same tax year, but total contributions cannot exceed the overall annual subscription limit.
The child can take control of the account when they reach the age of 16 but no withdrawals can be made until the child turns 18.
At 18, the child’s Junior ISA automatically turns into an adult ISA and the child can withdraw their money.
Help to Buy ISA
The Help to Buy ISA is a type of Cash ISA designed to help first time house buyers purchase a first-time property up to a maximum purchase price of £250,000 (£450,000 in London).
From 30 November 2019 it has no longer been possible to open a new Help to Buy ISA, being replaced by the Lifetime ISA. Existing Help to Buy ISA investors will be able to continue to make contributions until 30 November 2029 and claim the UK Government bonus until November 2030. This may be impacted by the consultation into the LISA.
The maximum monthly contribution is £200. The UK Government will add a 25% bonus, up to a maximum of £3,000, where the funds are used towards the purchase of a first property. The investor will need to have paid in at least £12,000 into the Help to Buy ISA, to qualify for the maximum UK Government bonus.
An investor can hold both a Lifetime ISA and Help to Buy ISA however only one of the UK Government bonuses received, can be used towards purchasing the first home.
Child Trust Fund (CTF)
A Child Trust Fund is a long-term tax-free savings account for children.
The UK Government gave varying amounts of contributions to children born between 1 September 2002 and 2 January 2011 to open a Child Trust Fund.
Child Trust Funds started to mature in September 2020, when the first eligible children reached age 18.
Similarly, to the Junior ISA, parents or guardians with parental responsibility will open the Child Trust Fund becoming the ‘registered contact’ and manage the investments. The investment belongs to the child and contributions are not limited to a parent or guardian, as other family members or unrelated individuals can also contribute.
The Child Trust Fund can be either be invested in Cash or Stocks & Shares, with a maximum contribution limit of £9,000 per year. The year starts on the child’s birthday and ends the day before their next birthday, not the tax year.
The child can take control of the account when they reach the age of 16 but no monies can be withdrawn until the child turns 18.
On the child’s 18th birthday, the Child Trust Fund automatically matures, allowing the child to take over the account however no additional monies can be added.
The child can then either withdraw money or the matured Child Trust Fund can be transferred into an adult ISA. The transferred value will not count towards the overall ISA limit in the tax year.
Child Trust Funds which are transferred into a Lifetime ISA will be subject to the annual Lifetime ISA limit.
Flexible ISAs
A Flexible ISA allows the investor to replace, in whole or in part, cash they have withdrawn from the ISA, without the replacement counting towards their annual subscription limit.
From April 2027, flexible ISA replacement subscriptions will still need to be considered alongside the new Cash ISA limit. For investors under age 65, replacing withdrawn cash into a Cash ISA should not be used to exceed the permitted Cash ISA subscription position for that tax year. Investors should check the provider’s terms and the final regulations before making withdrawals they intend to replace.
Iona contributes £9,000 of her £20,000 annual ISA allowance in April 2026. She then withdraws £4,000 in June 2026.
The subsequent amount she can add to her ISA in 2026/27 tax year is therefore dependent on whether the ISA is Flexible or not.
If Iona contributed to a Flexible ISA, then she could contribute:
- £15,000 – The remaining £11,000 of the investors annual ISA allowance plus the £4,000 she had previously withdrawn
If Iona contributed to a non-Flexible ISA, then she could only contribute:
- £11,000 – the remainder of the 2026/27 annual ISA allowance
A Stocks & Shares and Innovative Finance ISA can be flexible but only for withdrawals from cash held in the ISA. However Flexible ISAs are not available on Junior ISA, Help to Buy and Lifetime ISAs.
ISA providers are not obliged to offer Flexible ISAs, so investors will need to check if this option is available, before withdrawing monies, that they would subsequently want to replace.
The process is that Flexible ISA withdrawals are deemed to be from any current year contributions first, and then from previous year’s contributions.
When the ISA holder wishes to replace the monies into the Flexible ISA, is deemed to be from the previous tax year first, and then subsequently the current tax year subscriptions.
Jamie has £30,000 invested in a Flexible ISA, built up over previous tax years.
He has not contributed any money in tax year 2026/27 but he withdraws £10,000.
If he replaced this money in the same tax year 2026/27, he would still have his full annual £20,000 ISA allowance available to use.
Therefore, to benefit from the flexible rules then Jamie will need to replace the money in the same account and in the same tax year that he made the withdrawal from.
Withdrawals from an ISA
Investors can withdraw money from an ISA at any time, without losing any tax benefits. However, there may be costs or loss of fixed interest rates, if withdrawals are made from a fixed term Cash ISA. There may also be delays withdrawing monies from an Innovative Finance ISA.
There will also be the loss of the UK Government bonus if withdrawing from a Lifetime ISA or Help to Buy ISA, without meeting withdrawal criteria.
It is still allowed for non-UK resident ISA holders to make withdrawals from their existing holdings, similar to a UK resident holder.
ISA transfers
An ISA transfer is the process of moving savings from one ISA provider to another. After 6 April 2024, it is possible to transfer all or part of the savings in the ISA from one provider to another, at any time.
From 6 April 2027, transfers from Stocks & Shares ISAs or Innovative Finance ISAs into Cash ISAs will not be permitted for investors under age 65. The restriction is expected to be disapplied from the start of the tax year in which an investor turns 65.
Transfers from Cash ISAs into Stocks & Shares ISAs or Innovative Finance ISAs will remain possible.
The ISA transfer allows investors to switch providers or change the type of ISA they hold without losing the tax-efficient benefits of these accounts.
ISA transfers are still available if the investor is non-UK resident, allowing them to transfer their ISA to a different provider or different type of ISA.
For example, an investor can transfer savings from a Cash ISA to a Stocks & Shares ISA or to an Innovative Finance ISA while maintaining the tax status of the funds. From April 2027, the reverse route into a Cash ISA will be restricted for investors below age 65.
If the investor is transferring a Flexible ISA from the current tax year, the existing provider is required to inform the new provider how much of the investor’s annual allowance is remaining.
Transfer between different types of ISA
Investors can generally transfer all or part of their ISA savings from one provider to another at any time. Transfers may be to the same type of ISA or, where permitted, a different type of ISA, without losing the tax-efficient status of the funds.
The April 2027 restriction on transfers into Cash ISAs for investors under age 65 will also apply when transferring between different types of ISA.
Junior ISA transfers can only be made into other Junior ISAs.
It is possible to transfer a Lifetime ISA to a different type of ISA, however the investor would lose the UK Government bonus. If the investor is transferring a different type of ISA into a Lifetime ISA, they will only be able to transfer up to £4,000, the annual limit for Lifetime ISAs.
Since 6 April 2015, parents or guardians have been allowed to transfer an existing Child Trust Funds to a new Child Trust Fund provider or transfer to a Junior ISA provider. However, once it has been transferred to the Junior ISA it cannot be transferred back the Child Trust Fund.
Timescale for ISA transfers
There are no strict timelines for completing an ISA transfer, however there are industry guidelines.
ISA Type | Timescales for completing transfer |
|---|---|
Cash ISA | Should take no more than 15 working days from the date the new provider receives the completed transfer application |
Stocks & Shares ISA or other types of investment ISAs | Should be completed within 30 calendar days from the date the new provider receives the completed transfer application |
Innovative Finance ISA | The ISA provider will advise |
Transferring existing shares as a contribution
Shares acquired from an approved all-employee savings-related share option scheme, such as a Share Investment Plan (SIP), or Save as you Earn (SAYE) option plan can be transferred to a Stocks & Shares ISA (including a Lifetime ISA) if the ISA provider agrees to take them.
The amount transferred counts towards the annual contribution limit. The transfer is free of CGT if it is made within 90 days from the date, that they leave the scheme.
Death of an ISA investor
On the death of the investor the ISA can continue and becomes a ‘continuing account of a deceased investor.’ It is not permitted to contribute more into the ISA after death of the investor, however the growth and income will remain tax free whilst the administration of the estate is being completed.
The ISA tax status remains until the sooner of:
- the administration of the estate is complete or
- the ISA is closed or
- three years elapse since the date of death of the plan investor
If the ISA remains open 3 years and 1 day after death of the investor, then the provider must remove the ISA wrapper. All subsequent income and gains from this date will then become taxable in the hands of the estate.
Inheritance tax (IHT)
The value of an ISA at the date of death will form part of a deceased investor’s estate for IHT purposes.
If a child dies with either a Child Trust Fund or Junior ISA, the value of either will form part of their estate, with the beneficiary, usually one of the child’s parents. However, if the child were over 16 in Northern Ireland and Scotland then this could be their spouse or civil partner.
If an ISA is inherited by a spouse or civil partner on death, then it will be covered by the spousal exemption. Therefore, the ISA will form part of the surviving spouse’s estate, meaning that on the second death, IHT may then become due. There would be no IHT on first death.
If someone other than the spouse or civil partner inherits an ISA, then this will use up some of the deceased’s nil rate band. If the value of the ISA is large enough, this could result in an IHT charge.
However, irrespective of who inherits the ISA funds, a surviving spouse or civil partner can still apply for Additional Permitted Subscriptions (APS) (see below).
As noted previously, AIM shares can be qualifying investments within a Stocks & Shares ISA. If qualifying AIM shares have been held for at least two years before death, they may qualify for Business Relief. From 6 April 2026, the rate of Business Relief available for qualifying shares designated as “not listed” on recognised stock exchanges, such as AIM shares, is 50% rather than 100%.
Additional Permitted Subscription (APS)
Additional Permitted Subscription gives the spouse or civil partner an increased ISA allowance equal to their deceased spouse’s ISA value, as at the date of death. The spouse or civil partner can fund the APS subscription from savings of their own or inherited assets and is in addition to the normal annual ISA subscription limit.
To be eligible for APS the deceased and the surviving spouse or civil partner must have been living together at the date of death.
They must not have been separated:
- under a court order
- under a deed of separation
- in circumstances where the marriage or civil partnership has broken down
The APS can be made to the provider who holds the deceased’s ISA or another provider who agrees to accept the subscriptions. The APS amount can be either the value of the deceased’s ISA at:
- their date of death or
- the point the ISA ceased to be a ‘continuing account of a deceased investor’.
There are time restrictions on when the APS must be made:
- 3 years after the date of death, or
- if later, 180 days after the administration of the estate is complete
The APS can be made to a Cash, Stocks & Shares, or an Innovative Finance ISA, financed by cash or inherited non-cash ISA assets. The APS can also be made to a Lifetime ISA if the investor is resident in the UK, and this will count towards the Lifetime ISA contribution limit, but not the annual overall ISA APS limit. If the surviving spouse or civil partner is 16 or 17 then the APS must be made to an adult Cash ISA.
Robert is dealing with the estate of his late wife Morag, who passed away in June 2023. Probate was granted showing the following ISA investments.
Date of death – Investment values:
- Cash ISA £45,000
- Stocks & Shares ISA £110,000
Estate administration completed – Investment values:
- Cash ISA £49,000
- Stocks & Shares ISA £117,000
Robert is entitled to an APS for the greater of:
- the date of death value
- the value when the administration of the estate is complete.
Therefore, in this example Robert can apply for an APS value of £166,000, (£49,000 & £117,00) the closing value of the estate.
