An introduction to ISAs

If you’re thinking about saving or investing, it can be difficult to decide on the best place to put your money. There are hundreds of different accounts on offer from banks, building societies and investment companies. So how do you make your choice? For many people, taking out an ISA (Individual Savings Account) can be a good place to begin.

An ISA is a simple, tax-efficient way to save or invest. The advantage of these types of account is that you don’t pay tax on the interest you earn, or the increase in value of your investments (no Capital Gains Tax to pay) and some deliver a government bonus. There are now several different types of ISA available, designed by the government to encourage people over 16 to save or invest for their or their children’s future.

The basic types of ISA are:

With a Cash ISA you never need to pay tax on the interest you earn on your cash.

Help-to-Buy ISAs are designed for first-time house buyers as a type of Cash ISA. When the money saved is used to complete a house purchase, the government adds a 25% bonus (up to a maximum bonus of £3,000). The Help to Buy ISA closed to new applicants on 30 November 2019. If you opened a Help to Buy ISA before then, you will be able to continue saving into your account until 30 November 2029. You then have until 1 December 2030 to claim the 25% state bonus.

Innovative Finance ISAs involve cash used for peer-to-peer lending, and mean that any interest you earn from lending your money to other people or companies is not taxed.

Not all firms/advisers provide advice on this product.

With a Lifetime ISA (LISA) you are able to hold your money in cash or invest in stocks and shares. LISAs are designed for those aged 18 to 40 wanting to save for their first home or retirement, with the added attraction that they can save until they are 50 if they wish to and can leave the account open until age 60. People under the age of 40 are able to contribute up to £4,000 in each tax year. Government bonuses apply up to age 50.

If you choose a Stocks and Shares ISA, there is no Capital Gains Tax and no tax on dividend income. ISA dividends have no impact on the dividend allowance.

Junior ISAs are a tax-efficient way to build up savings for a child and can be opened for any child under 18 living in the UK. The money can be held in cash and/or invested in stocks and shares.

The ISA allowance is £20,000. You can put all the £20,000 into a Cash ISA, or invest the whole amount into a Stocks and Shares ISA or Innovative Finance ISA. You can also mix and match, putting some into cash, some into stocks and shares and the rest into innovative finance if you wish. However, the combined amount can’t exceed your annual ISA savings allowance of £20,000 for the tax year.

With a Lifetime ISA, if you are aged between 18 and 40, you can save up to £4,000 each year. People who save the maximum each year will receive a £1,000 bonus each year from the government. Savers need to be aware of the risks associated with a LISA, early withdrawal charges, restrictions and accessibility.

The Junior ISA allowance is £9,000.

We can help you make the right choice of ISA based on your age, the length of time you want to save for and your plans for the future. We can save you time and make recommendations that are right for your personal financial circumstances.

During the Autumn Budget 2024, the Chancellor confirmed the annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs until 5 April 2030.

Cash is solid and reliable, and with a Cash ISA you are guaranteed to get back all the money you have put in – depending on the direction of interest rates, there is a risk that inflation will erode the value of the money saved over time.

If you are able to lock your money away for a reasonable amount of time – a minimum of five years for example –you might consider investing in stocks and shares which historically have offered a better return, although this is dependent on your attitude to risk and your circumstances. Unlike cash savings, money invested in stocks and shares rises and falls in line with what is happening in financial markets. So the value of your investment can go up and down.

Given that you can put your money into both cash, and stocks and shares within an ISA, people often find this a tricky decision to make. This is where we can offer practical help and guidance based on your attitude to risk, and the length of time you have to save or invest.

You can split your savings across multiple ISAs to have a combination of Cash ISA, Stocks and Shares ISA, Innovative Finance ISA and Lifetime ISA.

The government confirmed in the Spring Statement 2025 that it is considering reforms to ISAs to boost savers’ returns and the government’s growth goals, for example by nudging more savers from Cash ISAs to Stocks and Shares ISAs.

ISAs can be flexible, which means that if the account terms allow, you can take cash out and put it back during the same tax year without reducing your current year’s allowance and without losing the tax benefits.

No, there is no requirement to do this under current tax rules. You don’t need to declare income and capital gains from ISA savings or investments on your tax return. You don’t need to declare income and capital gains from ISA savings or investments on your tax return.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

If interest rates are low, there is a risk that over time inflation will erode the buying-power of your savings. You can hold a wide variety of assets in an ISA. We’ll explain these options to you.

If you intend to save or invest into an ISA over the longer term, say five to ten years, then you may want to consider investing rather than saving in cash, giving your money more time and scope for growth.

If you’re thinking of putting your ISA subscription into the stock market, but are worried about the volatility that stocks and shares can sometimes experience, then you can always choose to make regular contributions. This approach called ‘pound-cost averaging’ means that you don’t have to worry about getting the timing of purchases exactly right, and there’s no need to constantly watch markets to invest at the right moment.

Both ISAs and pensions are forms of tax wrapper that offer valuable tax concessions. One of the key differences between ISAs and pensions is that contributions to ISAs are made from taxed income, while those made to pensions are not. Savers contributing to a pension within HMRC annual and lifetime allowances receive tax relief at the same rate they pay income tax. With a pension, you can’t generally access your money before you are 55. For many people, contributing to an ISA and a pension makes good financial sense.

ISAs have an important part to play in organising your money in a tax-efficient way and making provision for the future. We can offer advice about the type of ISA that would work best for you, whether you’re investing for a child through a Junior ISA, or accumulating funds for future goals such as a comfortable retirement.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

For ISAs, investors do not pay any personal tax on income or gains but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA manager. Tax treatment varies according to individual circumstances and is subject to change.

You will incur a lifetime ISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a lifetime ISA.

By saving in a lifetime ISA instead of enrolling in, or contributing to an auto-enrolment pension scheme, occupational pension scheme, or personal pension scheme:

(i) you may lose the benefit of contributions from your employer (if any) to that scheme; and

(ii) your current and future entitlement to means tested benefits (if any) may be affected.

We’re only a phone call away, so if you have queries or would like to discuss the different types of ISAs and consider what would work best for you or your family, please do get in touch.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.