ISAs Explained
Everything you need to know about Individual Savings Accounts — the UK's most powerful tax-free wrapper.
An ISA (Individual Savings Account) lets you save or invest up to £20,000 per tax year with no income tax, no dividend tax, and no capital gains tax — ever. Money inside an ISA grows tax-free and you don't even need to declare it on a tax return.
The four ISA types
Stocks & Shares ISA
For investing in funds, ETFs, individual shares, and bonds. The default choice for long-term investors. Suited to anyone with a 5+ year horizon who can stomach short-term volatility.
Cash ISA
Like a savings account, but tax-free interest. Useful if you'd otherwise breach your Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate, £0 for additional rate).
Lifetime ISA (LISA)
Open between ages 18–39, contribute up to £4,000/year, and the government adds a 25% bonus (£1,000/year max). Use it for a first home (under £450k) or wait until age 60. Withdraw early for any other reason and you lose 25% — meaning you lose more than the bonus.
Junior ISA (JISA)
For under-18s. £9,000/year limit. Locked until 18, when it converts to a normal ISA in their name.
The £20k allowance
The £20,000 limit is total across all your ISAs (excluding JISA which has its own pot). From April 2024, you can open and contribute to multiple ISAs of the same type in the same year — previously you couldn't.
ISA vs pension — which first?
Both are tax-efficient but have different trade-offs:
• Pensions get tax relief on the way in (huge for higher-rate payers), but you can't access until 57 (rising) and pay income tax on withdrawal.
• ISAs are funded with already-taxed money but withdrawals are entirely tax-free, and there's no minimum age.
For most people: capture full employer pension match → max ISA → top up pension. The exception is high earners caught by the 60% personal allowance taper, where pension contributions are extraordinarily tax-efficient.
