Your guide to ISAs: a smarter way to save and invest

Main ISA Types
There are a number of different types of ISAs depending on circumstances including:

• Cash ISA: a savings account that pays interest tax-free.
• Stocks and shares ISA: An investment account where returns from shares, funds and other investments are protected from income tax and capital gains tax.
• Junior ISA (JISA): For children under 18, also tax-free, with a separate annual allowance. Both cash and stocks & shares JISAs are available. A parent or guardian must open and manage the account and the child cannot withdraw from this until they turn 18.
• Lifetime ISA (LISA): Designed to support first-time home buying or retirement savings, offering a government bonus up to £1,000 a year on up to £4,000 contribution.
• Innovative finance ISA: For peer-to-peer lending or other alternative finance agreements. Returns are tax-free, but these ISAs are not protected by the FSCS and carry a higher level of risk.

Every tax year runs from the 6th April through to the 5th of April the following year. Each tax year adults can put up to £20,000 into ISAs in total (across one or more types). JISAs have their own £9,000 limit per child. 16–18-year-olds can hold both a Junior ISA and an adult Cash ISA at the same time, using both allowances in full. LISA’s are subject to £4,000 cap and this is used as part of your £20,000 total allowance.

The government has indicated that it is reviewing the future of the Lifetime ISA, with consultation work underway on possible changes from April 2028. No final decisions have been announced. Anyone considering a Lifetime ISA should review the current rules carefully and seek advice where appropriate.

The Benefits of ISAs

• Tax-free growth: You don’t pay UK income tax or capital gains tax on returns.
• Flexible access: You can withdraw money from most ISAs at any time without losing the tax-free benefits, though terms vary by product.
• No need to report on tax returns: ISA returns are outside the scope of UK self-assessment.
• Multiple account flexibility: From 2024, savers can open and pay into more than one ISA of the same type in a tax year – (subject to provider acceptance) as long as the total contributions stay within the annual £20,000 limit. Lifetime ISAs remain limited to one per year.

The value of investments in a Stocks & Shares ISA or Innovative Finance ISA can go down as well as up, and past performance is not a guide to future returns.

What’s changing from 6 April 2027

From the 2027/28 tax year onwards, the government has proposed the following changes, subject to legislation being passed:

• Cash ISA cap or under-65’s: The maximum you can put into a cash ISA each year will be reduced from £20,000 to £12,000 for savers under age 65.
• Overall ISA allowance stays the same: The total annual ISA limit will remain £20,000, meaning the remaining £8,000 of your allowance will need to be used in other ISA types such as stocks and shares or innovative finance if you’re under 65.
• Over-65s unchanged: Those aged 65 and over will continue to be able to put up to £20,000 into a cash ISA each year.
• Junior ISA limits unchanged: The annual JISA allowance remains at £9,000 per child.

These changes will only apply if you are making new contributions from 6 April 2027 onwards. Existing ISAs will continue to benefit from tax-free status.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing.
Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Lycetts, its officers or employees, for any loss in connection with the content hereof and any such action or inaction.