The Individual Savings Account (ISA) allows people to save money tax-free
UK savers must adhere to a crucial £20,000 threshold. An Individual Savings Account (ISA) enables individuals to save money and earn interest tax-free. However, there’s an annual cap on how much can be held in an ISA.
Presently, this ceiling stands at £20,000 for the 2025/26 year. While the new financial year begins in April, this threshold is expected to continue for a further 12 months.
This regulation covers various ISA types including Cash, Stocks and Shares, Lifetime, and Innovative Finance ISAs. The GOV.UK website states: “In the 2025 to 2026 tax year, the maximum you can save in ISAs is £20,000.”
It continues: “Every tax year you can save up to £20,000 in one account or split the allowance across multiple accounts. The tax year runs from 6 April to 5 April.”
GOV.UK clarifies: “Your ISAs will not close when the tax year finishes. You’ll keep your savings on a tax-free basis for as long as you keep the money in your ISA accounts.”
Nevertheless, it’s worth noting that from April 2027, the Cash ISA ceiling is scheduled to drop to £12,000 for those aged under 65, as detailed below.
ISA categories
There are four categories of ISA:
- Cash ISA: Similar to a savings account but tax-free
- Stocks and Shares ISA: Allows investing in stocks, funds, and bonds
- Lifetime ISA (LISA): For buying a first home or retirement, with a 25 per cent Government bonus on contributions
- Innovative Finance ISA: Allows peer-to-peer lending
The £20,000 limit applies to the collective groups of ISAs. However, there are restrictions on how much you can contribute to a Lifetime ISA in a tax year. The maximum you can deposit in this is £4,000.
GOV.UK provides the following examples of how the savings could be divided:
- You could save £15,000 in a cash ISA, £2,000 in a stocks and shares ISA and £3,000 in an innovative finance ISA in one tax year
- You could save £11,000 in a cash ISA, £2,000 in a stocks and shares ISA, £3,000 in an innovative finance ISA and £4,000 in a Lifetime ISA in one tax year
- You could save £10,000 in one cash ISA, £3,000 in another cash ISA and £7,000 in a stocks and shares ISA in one tax year
Alterations for 2027
From April 6, 2027, the annual Cash ISA limit for those under 65 will be cut to £12,000 as part of a new two-tier structure aimed at promoting investment. Whilst the total ISA allowance is expected to stay at £20,000, the remaining £8,000 must be allocated to Stocks and Shares or Innovative Finance ISAs.
The modifications, outlined by Nationwide, are:
- You’ll be able to deposit up to £12,000 in a cash ISA each tax year
- The remainder – up to £8,000 – could be placed into a stocks and shares ISA
- Alternatively, you can select any combination that works for you, provided you don’t exceed £12,000 in a cash ISA and your combined total across both types of ISAs doesn’t surpass the £20,000 overall ISA allowance
- The annual limit for stocks and shares ISAs stays at £20,000
- For individuals aged 65 or older, these modifications don’t apply. The complete £20,000 annual ISA allowance will continue, which can be utilised across all ISAs
HMRC will likely contact you after the tax year ends to resolve the issue. You may be asked to remove the excess funds and any interest/gains earned on that specific excess.
The interest or income generated by the money exceeding the limit may become taxable. You can contact your ISA provider to identify the over-subscription and rectify it.
For more information, visit the Government website here.
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