ISA allowance: Can I put £20000 in an ISA every year?

The start of the tax year is the ideal moment to review your investment strategy. With the annual ISA allowance set at £20,000 for tax year 2025-26, you can plan how to allocate funds across different ISA types to maximise tax efficiency.

ISAs allow you to grow your investments free from income and capital gains tax, making full use of the allowance highly beneficial. You can invest the entire amount in one ISA or split it between several. Read our guide for a detailed explanation of what an ISA is and how it works.

This guide explains how the annual ISA allowance works, your options for using it, and how to make the most of this valuable tax benefit. Alternatively, get in touch, and we can talk you through your options.

How does the ISA annual allowance work in practice?

An Individual Savings Account (ISA) is a tax-efficient savings or investment account available in the UK. You can set aside money in an ISA each tax year without paying income tax or capital gains tax on your returns. However, there is a limit to how much you can contribute each year.

The UK tax year runs from 6 April to 5 April the following year. For the 2025/26 tax year, the total annual ISA allowance is £20,000, unchanged from the previous year.

This means you can contribute up to £20,000 into ISAs each tax year, in any combination of permitted ISA types, without paying tax on the returns. Any unused allowance cannot be carried forward — when the new tax year starts on 6 April, you receive a fresh annual ISA allowance set by the government.

To clarify, you can hold more than £20,000 in total within ISAs if you have built up savings over multiple years. The limit applies only to new contributions in each tax year.

There are four main types of ISA:

• Cash ISA
• Stocks and Shares ISA
• Lifetime ISA
• Innovative Finance ISA

You can open and contribute to one of each type in a tax year, as long as your combined contributions do not exceed the £20,000 annual ISA allowance.

Examples:

• £12,000 in a Stocks and Shares ISA, £9,000 in a Cash ISA, and £1,000 in a Lifetime ISA.
• £10,000 in a Cash ISA, £5,000 in a Stocks and Shares ISA, £2,000 in a Lifetime ISA, and £3,000 in an Innovative Finance ISA.

There is also a Junior ISA (JISA) for children, available as either a Cash or Stocks and Shares account. Contributions to a JISA do not affect your own annual ISA allowance.

While all ISAs provide tax benefits, the level of risk varies. Cash ISAs generally carry the lowest risk, whereas Innovative Finance ISAs involve higher risk, often linked to crowdfunding or peer-to-peer lending, and are not covered by the Financial Services Compensation Scheme (FSCS).

What are the different types of ISA allowance?

The Cash ISA allowance is the same as a stocks and shares ISA in any given tax year – £20,000. The only real difference with a Cash ISA is the assets you’re investing in.

The Junior ISA allowance, or JISA allowance, is £9,000 per tax year for 2025/26, unchanged from the previous year. For Junior ISAs, a parent or guardian can invest in either a cash Junior ISA or a stocks and shares Junior ISA and can only be accessed once the child turns 18 (though they can manage the account from 16 onwards). At age 16, the child can open an adult Cash ISA alongside the Junior ISA and save an additional £20,000.

The lifetime ISA allowance for 2025-26 is a little more complicated. You can only put in £4,000 per year into lifetime ISAs and must contribute at least once before turning 40. Also, you can only contribute to the ISA until you’re 50. With these conditions being met, the government will add a 25% bonus to your pot, up to £1,000 per year. Contributions into lifetime ISAs are also used for first-time property purchases.

The stocks and shares ISA may be the best option for an ISA wrapper for people looking to invest a substantial amount in a tax-free manner. However, if you want to use all of your ISA allowance for 2025-26, or even just part of it, we recommend doing some thorough research in order to get precisely what you’re saving for before you start.

Maximising Your Annual ISA Allowance: Why You Should Use It Before the Tax Year Ends

With any type of ISA, the first point to make is straightforward: utilise as much of your annual ISA allowance as you can afford. Of course, this doesn’t mean that you have to put £20,000 into your ISA account every year; very few people can afford to do that. What it does mean, however, is that you could better utilise any money you come by, by saving or investing in one of the types of ISAs.

So long as you’ve paid off any existing, expensive debt and saved enough as a rainy-day or emergency fund, utilising as much of your allowance as possible is highly recommended. ISA allowances operate on a ‘use it or lose it’ basis, so any unused annual allowance from the previous tax year can’t be rolled over.

There is also a question about when you should invest. The answer, almost always, is “now”. We’ve written a few times about the pitfalls of trying to time the market or holding off on investing for whatever reason. In almost all cases, it’s more beneficial for savers to invest as early as possible and avoid missing out on the historic ‘boom days’ that can supposedly make all the difference to long-term returns.

Consider multiple portfolios within your ISA

A key aspect of effective ISA management is understanding how to diversify within the allowance rules. While you cannot hold more than one Stocks and Shares ISA in the same tax year, Moneyfarm ISAs allow you to create multiple portfolios within a single ISA account. 

This approach enables you to diversify your investments while retaining the tax benefits of your annual ISA allowance.

Multiple portfolios can be used for different purposes, such as allocating funds to varying risk levels or investment strategies.

Examples:

Imagine you have £20,000 available to invest in the 2025/26 tax year. You can decide to allocate:

• £12,000 to a medium-to-high-risk portfolio with a long-term investment horizon of 10+ years.
• £5,000 to a balanced portfolio, offering moderate growth potential and reduced volatility.
• £3,000 to a conservative portfolio for capital preservation and income generation through fixed-income securities.

By structuring your ISA in this way, you maintain exposure to higher-growth opportunities while protecting part of your capital from market downturns.

When moving funds between portfolios or introducing new capital, it is important to track your contributions carefully to ensure you do not exceed your annual allowance. Planning your allocation in consultation with an investment professional can help optimise your strategy and maintain compliance with ISA rules.

Creating an additional portfolio within your existing Moneyfarm ISA is straightforward. You can follow the online process or contact our investment consultancy team.

Compound interest – Albert Einstein’s 8th wonder of the world?

Compound interest, often described as the “eighth wonder of the world”, allows your savings to grow at an accelerating rate over time.

The phrase is popularly attributed to Albert Einstein, although there is no evidence he actually said it. 

The principle is simple: you earn interest on your initial investment, and in subsequent years you also earn interest on the interest already accrued. This compounding effect means that consistent contributions to your ISA can have a powerful long-term impact.

Example: The power of compound interest

If you were to invest the full £20,000 annual ISA allowance every year and achieved an average annual return of 5%, your ISA could grow to over £850,000 after 25 years.

Increase that return to 7%, and your savings could exceed £1.1 million in the same period.

This growth happens because each year’s returns are added to your original investment, and future returns are then calculated on this larger amount. 

Over time, the compounding effect accelerates growth significantly, especially when combined with consistent annual contributions.

Three Fundamentals for Making the Most of Your ISA

1. Think long-term because market fluctuations are normal; stay invested to benefit from long-term growth.
2. Diversify to spread investments across assets and regions to reduce risk.
3. Get expert advice to check progress and adjust your plan.

Five reasons why you should use your ISA allowance

1. Tax reliefs and exemptions

Investors who hold their investments in an ISA get a tax break. You can invest your money in an ISA without paying income tax or capital gains tax. In addition, you don’t pay taxes on the dividends you receive from investments held in an ISA.

2. Minimal amount needed to open and maintain an account

You don’t need thousands of pounds to start investing in an ISA. But there is a limit to how much you can put in an ISA each year. The ISA allowance for 2025/26 limit for the tax year is £20,000.

3. Give your savings the chance to grow

Along with the tax benefits, ISAs also give your savings a great chance to grow over the long term. Taking into account factors like compound interest and active portfolio management, an ISA becomes a very attractive place for your wealth to be. Of course, investments can go down as well as up, and you may get back less than you put in, but it’s worth exploring your options if you want to protect and grow your wealth long-term.

4. Withdrawal flexibility

ISAs are becoming more flexible. For example, you can now withdraw and replace cash into a cash ISA account in the same tax year without affecting your annual allowances. However, not all ISA providers offer such flexibility, so you ask about it before you open an account.

5. ISA transfers

ISA transfers are possible and straightforward. There are several reasons why people transfer: you might want to switch providers due to better interest rates, consolidate all your accounts or transfer your cash ISA into a Stocks and Shares ISA. It would be best to be mindful when switching providers. Before transferring your ISA, check what charges, exit penalties, and benefits you might lose. It might be a good idea to seek professional advice.

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