Individual Savings Account (ISA) Explained

What is the annual ISA allowance?

The current annual ISA allowance – for the 2024/25 tax year – is £20,000. There are a number of different ISAs, and each have their own rules regarding subscription limits that you should be aware of before deciding where to allocate your ISA allowance.

For an in-depth insight into making the most of your ISA allowance, download our free guide here.

What is an ISA?

An Individual Savings Account (ISA) is a savings or investment account that benefits from a tax wrapper, allowing you to save or invest without paying tax on any interest you earn or any profits you make.

ISAs were set up in 1999 to encourage saving and investment and they provide a way of investing up to £20,000 a year (in the 2022/23 tax year) without paying tax on the investments.

What are the different types of ISA?

There are four types of adult ISA currently available:

- Cash ISA

- Stocks and Shares ISA

- Innovative Finance ISA (IFISA)

- Lifetime ISA

There's also a fifth type of ISA, designed specifically for children and young people, called the Junior ISA.

Who can open an ISA?

To be eligible to open an ISA, you must;

- Be a UK resident 

- Be aged 16 or over (Cash ISA)

- Be aged 18 or over (Stocks and Shares ISA and IFISA)

- Be aged 18 - 39 (Lifetime ISA)

Are ISAs worth it?

If you are considering opening an ISA, it is important that you think about whether or not they are the best option for you, and whether they are still a good place for your money.  

There are a number of differences between ISAs and traditional savings accounts, the main one being the tax wrapper. While all savings interest on ISAs is tax-free forever, this is not the case with traditional savings accounts. 

What are the benefits of an ISA?

The main benefit of an ISA is the tax wrapper, making any returns generated from savings and/or investments tax-free. This means that you don’t pay tax on profits on stocks and shares held within your Stocks and Shares ISA, on interest earned on bonds, or on dividend income. 

Can I transfer an ISA?

Yes, you can transfer an ISA from one provider to another (as long as they accept transfers). You can also choose to transfer to the same type of ISA, or to a different type.