The ISA is the simplest tax shelter in the UK: pay in, and everything that grows inside is free of income tax and capital gains tax forever. For 2026/27 the allowance is £20,000, which you can split however you like across Cash, Stocks and Shares, Lifetime and Innovative Finance ISAs. This guide explains each ISA type, the £4,000 Lifetime ISA limit that sits inside the £20,000, the flexible ISA rules that let you replace withdrawals in the same year, how transfers preserve your tax-free status without touching your allowance, and the bed-and-ISA technique for moving existing investments into the wrapper — with a worked example.
In 2026/27 you can pay up to £20,000 into ISAs across the tax year. That total is shared across every ISA you hold and every type — there is no separate limit per ISA. Everything inside grows free of income tax, dividend tax and capital gains tax, and nothing is ever reported to HMRC.
The allowance resets on 6 April and is strictly use-it-or-lose-it — unused allowance cannot be carried forward. A separate Junior ISA allowance of £9,000 applies to children and does not count towards the adult £20,000.
First home or retirement, with a 25% bonus (£4,000 cap)
Innovative Finance ISA
Peer-to-peer lending — higher risk, higher return
You can hold and pay into several types at once — and since April 2024, even more than one of the same type — as long as total contributions stay within £20,000. Compare options in the cash vs stocks & shares ISA comparison.
Lifetime ISA & the £4,000 Cap
The Lifetime ISA lets under-40s save up to £4,000 a year — counted within the £20,000, not on top — and the government adds a 25% bonus, up to £1,000 annually.
It is designed for two goals: buying a first home worth up to £450,000, or retirement from age 60. Withdraw for any other reason and a 25% charge applies, which can leave you with less than you contributed. For first-time buyers it is one of the most generous accounts available; weigh it against alternatives in the ISA vs LISA comparison.
Flexible ISA Rules
A flexible ISA lets you withdraw money and pay it back within the same tax year without the replacement counting against your allowance. So if you have paid in the full £20,000, take out £5,000, then repay it before 5 April, you have not breached the limit.
Without flexibility, that £5,000 repayment would be treated as a brand-new contribution and push you over. Flexibility depends on the provider, so check before you rely on it — and note that Lifetime ISAs are never flexible. This feature is handy if you need temporary access to cash without permanently sacrificing your tax-free wrapper.
Transfers
You can move money between ISAs — to a better rate, or from cash to stocks and shares — without using any of your annual allowance, provided you use the provider’s official transfer process. Never withdraw the money yourself, as that strips the tax-free status.
Current-year contributions must be transferred in full; money from previous tax years can be moved in whole or in part. Always ask the new provider to arrange the transfer — they pull the funds across directly, keeping everything inside the wrapper. See the ISA transfer rules guide for the detail.
Bed-and-ISA
If you hold investments outside an ISA, bed-and-ISA moves them into the wrapper. You sell the holdings in your taxable account and immediately repurchase them inside your stocks and shares ISA, using your £20,000 allowance.
The sale can trigger capital gains tax if your gain exceeds the £3,000 annual exempt amount, so it is often spread across several tax years to stay within the exemption. Once inside the ISA, all future growth, dividends and gains are tax-free — valuable now that the CGT exemption and dividend allowance are so low. Model the gain with the capital gains tax calculator.
Worked Example: Splitting the £20,000
Imagine a 35-year-old first-time buyer who also wants to invest. They split the 2026/27 allowance like this. Figures are illustrative.
Lifetime ISA: £4,000 (the cap) → £1,000 government bonus added = £5,000 working towards a deposit.
Stocks & Shares ISA: £12,000 invested for the long term, tax-free.
Cash ISA: £4,000 as an accessible, tax-free emergency buffer.
Total contributed: £4,000 + £12,000 + £4,000 = £20,000 — the full allowance.
All contributions stay within the single £20,000 limit, the LISA bonus is free money towards a home, and every penny of future interest, dividends and gains is sheltered from tax. Plan your own split with the ISA calculator and the Lifetime ISA calculator.
The ISA allowance for 2026/27 is £20,000. This is the total you can pay into ISAs across the tax year, regardless of how many ISAs you hold or which types they are. Any interest, dividends or capital gains earned inside an ISA are completely tax-free and do not need to be reported to HMRC. The allowance resets each 6 April and cannot be carried forward — if you do not use it by 5 April, it is lost. You can split the £20,000 across cash, stocks and shares, Lifetime and Innovative Finance ISAs as you wish.
What are the different types of ISA?
There are four main ISA types for adults. A Cash ISA holds savings and pays tax-free interest. A Stocks and Shares ISA holds investments such as funds and shares, with tax-free growth and dividends. A Lifetime ISA (LISA) is for first homes or retirement, with a 25% government bonus but a £4,000 annual limit and withdrawal penalties. An Innovative Finance ISA (IFISA) holds peer-to-peer loans and is higher risk. There is also a separate Junior ISA for children, with its own £9,000 allowance that does not count towards the adult £20,000.
How much can I put in a Lifetime ISA?
You can pay up to £4,000 a year into a Lifetime ISA, and this counts within your overall £20,000 ISA allowance — it is not on top of it. The government adds a 25% bonus, up to £1,000 a year, making the LISA powerful for first-time buyers and retirement savers under 40. The catch is access: you can only withdraw penalty-free to buy a first home worth up to £450,000 or from age 60. Any other withdrawal incurs a 25% charge, which can return less than you put in.
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What is a flexible ISA?
A flexible ISA lets you withdraw money and pay it back within the same tax year without that replacement counting against your annual allowance. For example, if you have paid in the full £20,000, withdraw £5,000, and then repay it before 5 April, you have not breached the allowance. Without flexibility, repaying that £5,000 would be treated as a fresh contribution and exceed the limit. Not all ISAs are flexible — it depends on the provider — so check before relying on it. Lifetime ISAs are never flexible.
How do ISA transfers work?
You can transfer money between ISAs — for instance from a cash ISA to a stocks and shares ISA, or to a better-paying provider — without it using up your annual allowance, provided you use the provider’s official transfer process rather than withdrawing and re-depositing. Money paid into an ISA in the current tax year must be transferred in full; money from previous years can be transferred in whole or in part. Always ask the new provider to arrange the transfer so the tax-free status is preserved; never simply withdraw the cash.
What is bed-and-ISA?
Bed-and-ISA is a technique for moving investments you already hold outside an ISA into the tax-free wrapper. You sell the investments in your taxable (general investment) account and immediately repurchase them inside your stocks and shares ISA, using your annual allowance. The sale may trigger capital gains tax if your gain exceeds the £3,000 annual exempt amount, so it is often spread over several tax years to stay within the exemption. Once inside the ISA, future growth, dividends and gains are tax-free, sheltering the holding from CGT and dividend tax going forward.
Can I pay into more than one ISA in the same year?
Yes. Since April 2024 you can pay into multiple ISAs of the same type in the same tax year — for example two different cash ISAs — as well as across different types, provided your total contributions stay within the £20,000 allowance. The exception is the Lifetime ISA, where you can still only contribute to one in a given year and the £4,000 sub-limit applies. This flexibility makes it easier to chase the best rates and split money between providers without waiting for a new tax year.
Do ISA savings count towards the Personal Savings Allowance?
No. Interest earned inside a Cash ISA is entirely tax-free and sits completely outside the Personal Savings Allowance (PSA). The PSA — £1,000 for basic-rate taxpayers, £500 for higher-rate and nil for additional-rate — applies only to interest from ordinary, non-ISA savings. So ISAs are especially valuable for higher and additional-rate taxpayers, who get little or no PSA, and for anyone whose savings interest would otherwise breach the allowance. ISA interest never needs declaring on a tax return.
What happens to my ISA allowance if I do not use it?
It is lost. The £20,000 ISA allowance is strictly use-it-or-lose-it each tax year and cannot be carried forward to a future year. If you contribute only £8,000 by 5 April, the remaining £12,000 disappears — you start fresh with a new £20,000 on 6 April. This is why many savers make a contribution before the tax-year end, even a small one, to use as much of the wrapper as they can. There is no penalty for using only part of the allowance; you simply forgo the unused portion.
What happens to an ISA when the holder dies?
A surviving spouse or civil partner receives an Additional Permitted Subscription (APS), a one-off extra ISA allowance equal to the value of the deceased’s ISA at death (or at closure, if higher), on top of their own £20,000 annual limit. This lets the ISA’s tax-free status effectively pass to the survivor. The ISA itself usually becomes a “continuing ISA” and keeps its tax-free treatment until it is closed or the administration of the estate completes, rather than losing that status immediately on death.
Disclaimer: This guide reflects 2026/27 UK ISA rules. The £20,000 allowance, the £4,000 Lifetime ISA limit, transfer and flexibility rules and the CGT annual exempt amount change at fiscal events. Investing carries risk and the value of stocks and shares ISAs can fall. This is general information, not personal advice; refer to gov.uk for current official rates and consider a regulated adviser.
