ISAs are one of the simplest and most popular ways to save and invest without paying tax on the returns. Understanding how the ISA allowance works helps you make the most of it each year. This guide explains ISAs and the £20,000 allowance for 2026/27.
What is an ISA?
An ISA, which stands for Individual Savings Account, is a tax free wrapper for your savings or investments. Any interest, dividends or capital gains earned inside an ISA are completely free of tax, and you never have to declare them. This makes ISAs a cornerstone of tax efficient saving for millions of people.
The ISA allowance
Each tax year you can pay in up to a set amount across your ISAs, known as the ISA allowance. For 2026/27 the allowance is £20,000. You can put the whole amount into one ISA or split it across different types. The allowance resets on 6 April each year and cannot be carried forward, so any unused allowance is lost.
The types of ISA
There are several types. A Cash ISA works like a tax free savings account. A Stocks and Shares ISA holds investments, with any growth and income tax free. A Lifetime ISA helps under 40s save for a first home or retirement, with a government bonus, within a lower yearly limit. An Innovative Finance ISA holds peer to peer loans. You can pay into more than one type in the same year, as long as you stay within the overall £20,000.
Why ISA returns are tax free
Outside an ISA, savings interest above your personal savings allowance is taxable, dividends above the dividend allowance are taxed, and gains above the Capital Gains Tax allowance are taxed. Inside an ISA, none of this applies. As the savings, dividend and Capital Gains Tax allowances have been cut in recent years, the value of sheltering money in an ISA has grown.
Making the most of your allowance
Because the allowance cannot be carried forward, using it each year before 5 April is the key to building a large tax free pot over time. Couples have an allowance each, so a couple can shelter up to £40,000 a year between them. Moving existing taxable investments into an ISA, sometimes called Bed and ISA, can also protect future returns.
ISAs versus pensions
ISAs and pensions are both tax efficient but work differently. Pensions give tax relief going in but are taxed when you draw them, beyond the tax free lump sum, and are locked away until later life. ISAs are funded from taxed income but are completely tax free coming out and accessible at any time. Many people use both, for different goals.
Frequently asked questions
What is the ISA allowance for 2026/27?
£20,000 across all your ISAs in the tax year, which you can put in one ISA or split across different types.
Do I pay tax on ISA returns?
No. Interest, dividends and capital gains inside an ISA are completely tax free and do not need to be declared.
Can I have more than one ISA?
Yes. You can pay into more than one type of ISA in the same year, as long as your total contributions stay within the £20,000 allowance.
Can I carry forward unused ISA allowance?
No. The ISA allowance resets each tax year on 6 April and cannot be carried forward, so unused allowance is lost.