Investing
A guide to ISAs
The government offers us a range of tax-efficient ISA options. So, what are they and how do they work?
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Last Updated on 24th July 2025
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The government offers us a range of tax-efficient ISA options. So, what are they and how do they work?
ISAs, officially Individual Savings Accounts, offer a tax-efficient way to save and invest, making them an extremely attractive option for both regular savers and those with lump sums.
Since ISAs were launched in 1999, they have become one of the most popular savings products in the UK, allowing individuals to put away sums tax-efficiently. What do you need to know about them?
There are four principal types of ISA:
Each type of ISA has different features and serves a different purpose, but they all offer the same tax-efficient benefits. You are not liable to pay tax on any interest earned on cash in an ISA, nor will you pay income, dividend or capital gains tax on any investments held in an ISA.
Keep in mind that tax treatment varies by individual and may change over time.
Across cash, stocks and shares and Innovative Finance ISAs, you may save up to £20,000 in total each year. However, only £4,000 can be paid into the Lifetime ISA in a financial year, to which the government also adds a 25% t bonus of up to £1,000. You may hold multiple ISAs, but the total annual allowance is capped at £20,000.
For example, you may put £13,000 in a cash ISA, £4,000 in a Lifetime ISA and £3,000 in a stocks and shares ISA in a single tax year.
As of April 2024, you can now subscribe to multiple ISAs of the same type in a single tax year—a major change from previous rules.
For most ISAs, you may take money out at any time, although there may be restrictions or charges. Some ‘flexible’ cash ISAs allow you to take cash out of your account without it affecting your tax allowance for the year.
Let’s say you put £20,000 into a flexible cash ISA in the current tax year but then decide to withdraw £1,000 of it. With a flexible cash ISA, you would be able to add back that £1,000 later on in the same tax year.
You may also transfer your ISAs from one provider to another at any time and from one type of ISA to another, but there may be a charge. Transfers should take no more than 15 working days between cash ISAs and no more than 30 calendar days for other types of ISA.
You cannot transfer an ISA allowance or open a joint ISA with anybody else. However, with certain types of ISA, such as the Lifetime ISA or Help to Buy ISA, you can pool your savings with a partner to purchase a property.
In certain situations, you may be eligible to inherit ISA benefits from a deceased spouse or civil partner. If you were living together at the time of their death and not legally separated, you can apply for an Additional Permitted Subscription (APS). This allows you to make extra ISA contributions, on top of your annual allowance, up to the value of the ISAs they held.
You don’t need to inherit the ISA assets themselves to use the APS, and you can choose to make the subscription with the same ISA provider or a different one that accepts APS. However, there are strict time limits: you must use the APS within three years of the date of death, or within 180 days of the completion of the estate administration, whichever is later.
If you move abroad, you cannot put any money into an ISA after the tax year you moved, and you must tell your provider that you have stopped being a UK resident. However, you can keep your ISA open and claim tax relief on any cash and investments held in it. You can pay into your ISA again if you return and again become a UK resident.
When you die, the ISA will end when it is closed by the executor of your estate or when the administration of the estate is completed. Otherwise, the ISA provider will close it three years and one day after your death.
Cash ISAs and stocks and shares ISAs are two of the longstanding products available for savers, and the easiest to understand.
Cash ISAs can include savings in bank and building society accounts, and some savings from National Savings and Investments, the government-owned bank. Many banks and building societies offer cash ISAs, including low-interest instant access accounts or higher interest accounts where savings are locked up for a certain period, or withdrawals are limited.
Stocks and Shares ISAs allow you to hold a range of different types of financial assets, such as company shares, investment funds, corporate bonds and government bonds. Investment and wealth management companies and fund platforms are more likely to offer stocks and shares ISAs.
The success of ISAs has led to several variations in the years since their launch. For instance, Junior ISAs, or JISAs, have grown in popularity as a savings vehicle for children under 18 since the Child Trust Fund scheme closed in 2011.
Junior ISAs are available in both cash and stocks and shares versions, and children may have one of each. Many banks and building societies offer them, as well as several investment and wealth management companies. Children can take control of their JISAs at 16 and are able to withdraw money from the accounts at 18. The savings limit for a Junior ISA currently stands at £9,000 per year.
The Lifetime ISA, or LISA, was launched in 2017 and designed to help people buy their first home or save for later life. They are offered by a range of different financial institutions, including banks, building societies and wealth managers.
You can hold both cash and the same types of financial assets that are held in stocks and shares ISAs. A maximum of £4,000 a year may be contributed until the age of 50, included within the overall £20,000 ISA allowance, with the government contributing a bonus of 25% t capped at £1,000 a year.
If you’re buying a first home, then please note that there are several conditions for using the Lifetime ISA and its government bonus:
If you’re buying a first home with someone else, you may both use your Lifetime ISA savings and the government bonus, but you must both be a first-time buyer and meet all the other requirements.
Savings can only be withdrawn from the LISA if you are buying your first home, aged 60 or over, or are terminally ill. There is a 25% withdrawal charge for any other reason, which applies on the entire amount withdrawn, not just the Government bonus received. If you die before 60, the Lifetime ISA ends on the date of your death, and there is no charge to withdraw the funds or assets from your account.
If you transfer cash or assets from a Lifetime ISA to a different type of ISA before 60, you must pay the 25% withdrawal fee on the full amount being transferred.
Some savers may also be invested in Help to Buy ISAs, but these are no longer available for new savers. Existing savers can pay in up to £200 per month, with the government providing a 25 percent top-up, up to a maximum of £3,000 over the life of the ISA. Existing savers can continue to pay into the ISA until November 2029 and claim the government bonus until November 2030. The home must have a purchase price below £450,000 in London or £250,000 outside of London.
ISAs can play a key role in tax planning and wider financial planning. You may benefit from speaking with a financial adviser who can help assess how they can work for you and your particular circumstances. At Schroders Personal Wealth, there are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.
Please note, this article is for general information only. For advice tailored to your situation, speak with your adviser.
Fees and charges apply at SPW.
Schroders Personal Wealth do not offer Cash ISAs, Lifetime ISA’s (LISA) or Innovative ISA’s, mortgage or mortgage advice.
The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors might not get back their initial investment.
Cash savings and investments are protected to the value of £85,000 per person per institution by the Financial Services Compensation Scheme (FSCS).