The start of a new tax year is the ideal moment to review your investment strategy. With the annual ISA allowance set at £20,000 for the tax year 2025/26, effective planning is essential to maximise your tax efficiency.
Individual Savings Accounts (ISAs) allow you to grow your investments free from income and capital gains tax, making full use of the allowance highly beneficial. Whether you choose to invest the entire amount in one ISA or split it across several, understanding the rules is key.
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 with our team to discuss your options.
The Most Important ISA Rule to Remember
Unlike previous years, new flexibility rules introduced in April 2024 allow you to subscribe to multiple ISAs of the same type within the same tax year (except for Lifetime ISAs), provided you remain within the overall £20,000 limit.
Quick ISA Questions Answered
| Question | Answer |
|---|---|
| Can I put £20,000 in an ISA every year? | Yes, you can deposit up to the full ISA allowance limit each tax year. |
| Can I have more than £20,000 in an ISA? | Yes, your total ISA value can grow beyond £20,000 through investment growth and contributions from previous tax years. However, you cannot add more than £20,000 of new money in a single tax year. |
| Does the ISA allowance accumulate? | No. Unused ISA allowance does not roll over into the next tax year. It is a “use it or lose it” allowance. |
How does the ISA annual allowance work in practice?
An Individual Savings Account (ISA) is a tax-efficient wrapper available to UK residents. You can set aside money in an ISA each tax year without paying Income Tax or Capital Gains Tax on your returns.
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. Any unused allowance cannot be carried forward — when the new tax year starts on 6 April, you receive a fresh annual ISA allowance.
The Main Types of ISA
There are four main types of ISA available to adults. You can mix and match your contributions across these, provided the total new contributions do not exceed £20,000.
- Cash ISA
- Stocks and Shares ISA
- Lifetime ISA (LISA)
- Innovative Finance ISA (IFISA)
Allocation Examples:
- £12,000 in a Stocks and Shares ISA, £8,000 in a Cash ISA.
- £4,000 in a Lifetime ISA, £10,000 in a Stocks and Shares ISA, and £6,000 in a Cash ISA.
- £20,000 entirely into a Stocks and Shares ISA.
There is also a Junior ISA (JISA) for children. Contributions to a JISA do not affect your own annual ISA allowance.
ISA Allowance Breakdown by Type (2025/26)
| ISA Type | Annual Allowance | Age Restrictions | Key Rules & Benefits |
|---|---|---|---|
| Stocks and Shares ISA | £20,000 | 18+ | Invest in shares, funds, and bonds. No tax on capital gains or income. Potential for higher returns over the long term. |
| Cash ISA | £20,000 | 18+ (some 16+) | Works like a savings account but interest is tax-free. Low risk. |
| Lifetime ISA (LISA) | £4,000 | 18–39 to open | 25% government bonus (max £1,000/year). Funds must be used for a first home or retirement (age 60+). The £4k counts toward the total £20k limit. |
| Junior ISA (JISA) | £9,000 | Under 18 | Separate allowance. Funds legally belong to the child and are locked until age 18. |
Maximising Your Annual ISA Allowance
Why You Should Use It Before the Tax Year Ends
With any type of ISA, the strategy is straightforward: utilise as much of your annual ISA allowance as you can afford. While not everyone can set aside £20,000, using your allowance ensures your savings are shielded from taxes efficiently.
Timing the Market vs. Time in the Market
There is often a question about when to invest. The answer, historically, is “now.” Trying to time the market often leads to missed opportunities. In almost all cases, it is more beneficial for savers to invest early and allow their money to benefit from long-term market exposure.
Consider Multiple Portfolios
A key aspect of effective management is diversification. Moneyfarm ISAs allow you to create multiple portfolios within a single account. This enables you to structure your £20,000 allowance across different risk levels.
Example Strategy:
- £12,000 in a higher-risk portfolio for long-term growth (10+ years).
- £8,000 in a lower-risk portfolio for stability.
The Power of Compound Interest
Compound interest is often described as the “eighth wonder of the world.” It allows your savings to grow at an accelerating rate because you earn returns on your returns.
Example: If you invested the full £20,000 allowance annually and achieved an average annual return of 5%, your ISA pot could grow to over £850,000 after 25 years. If returns increased to 7%, that figure could exceed £1.1 million.
Note: Investments can fluctuate, and past performance is not a guarantee of future results.
Three Fundamentals for Making the Most of Your ISA
- Think long-term because market fluctuations are normal; stay invested to benefit from long-term growth.
- Diversify to spread investments across assets and regions to reduce risk.
- Get expert advice to check progress and adjust your plan.
5 Reasons to Use Your ISA Allowance
- Tax Efficiency: No Income Tax or Capital Gains Tax on returns.
- Accessibility: Low minimum amounts needed to open accounts.
- Growth Potential: Give your savings the chance to beat inflation over the long term.
- Flexibility: Many ISAs now allow flexible withdrawals without losing the allowance status (check with your provider).
- Transferable: You can transfer between providers to find better rates or lower fees without affecting your current year’s allowance.
FAQ
No. The £20,000 cap applies to new contributions per tax year. However, transfers from previous years’ ISAs do not count toward this limit.
es, as long as your total contributions across all your ISAs do not exceed £20,000 for the current tax year.
You can contribute to an ISA as many times as you like this tax year, providing your overall contribution during the tax year does not exceed the ISA allowance for 2025-26, which is £20,000.
No. The ISA allowance operates on a strict “use it or lose it” basis. Any part of the allowance not used by 5 April is lost and cannot be rolled over. A fresh allowance is made available at the start of each new tax year.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
