ISAs – the essentials


Individual Savings Accounts (ISAs) are tax efficient savings and investments that pay no tax on their income or gains or when they are encashed. This also means they do not need to be reported on a tax return. 

This briefing sets out the types, rules, and benefits of ISAs. 

Core considerations  

  • ISAs are tax-efficient savings vehicles open to UK residents (and Crown servants living overseas).   
  • ISA contributions are limited each tax year to £20,000 for an adult overall and £9,000 for Junior ISA (JISA). If investing in a Lifetime ISA (LISA) there is a £4,000 limit.
  • ISA contributions can be paid into different types of ISA in the same tax year up to the maximum overall limit, but they cannot be paid into two or more of the same type of ISA in the same tax year.
  • Flexible ISAs allow money that is taken out to be replenished in the same tax year in addition to the normal contribution limit.  
  • ISAs form part of an individual’s estate for Inheritance Tax purposes and a surviving spouse or civil partner can benefit from an additional ISA allowance known as an Additional Permitted Subscription. 
  • ISAs can generally be transferred between providers and types at any time. Full and partial transfers are permitted but funds for the current tax year’s contribution must all be transferred.   


Types of ISA

There are currently five different types of ISAs which can be opened, one of which is for child savings (JISA). 

  1. Cash ISA can hold savings in banks and building societies and some National Savings and Investment products.
  2. Stocks and shares ISA can hold shares in companies, unit trusts, investment funds, corporate bonds and government bonds.  
  3. Innovative finance ISA can invest in a business by buying its debt (crowdfunding debentures) or peer to peer loans. 
  4. Lifetime ISA (LISA) can help those who want to save either for a first home or accessed from age 60. The LISA can be stocks and shares or cash, and a 25% bonus (up to a maximum of £1,000) is added by the government each year to the contributions made during that year. If, however, the investor wishes to withdraw their investment early, a 25% withdrawal charge will apply, unless the investor dies or is diagnosed with a terminal illness and has less than 12 months to live. 
  5. Junior ISA (JISA) is a child’s savings account which can be stocks and shares or cash. The child can take control of the JISA at age 16. However, funds cannot usually be withdrawn before age 18 unless a terminal illness or death occurs before that. The child cannot have a Child Trust Fund as well as a JISA.  

Help to Buy ISA was launched on 1 December 2015 to provide first-time buyers the opportunity to save up to £200 a month for a house purchase with a 25% government bonus. The Help to Buy ISA closed to new savers on 30 November 2019 but existing holders can continue to save into their accounts until November 2029. The bonus of 25% must be claimed by November 2030. 

Who can have an ISA and what is the eligibility criteria?

ISAs can be opened by an individual who is resident in the UK or, if not living in the UK, by a Crown servant or their spouse/civil partner, either for themselves or their child’s JISA. If an individual becomes non-UK resident, they can continue to hold the ISA but they can’t invest in it until they become UK resident again. 

ISAs cannot be held jointly, and Trustees and other legal entities such as a Company cannot invest in an ISA. 

For a cash ISA the minimum age was 16 years old. Following changes announced in the 2023 Autumn Statement the minimum age was increased to 18 for individuals who do not have an existing cash ISA. 

Where an individual aged 16 or 17 holds an existing cash ISA, they may continue to subscribe to it or transfer it to another cash ISA. 

For a stocks and shares, innovative finance ISA, the minimum age at entry is 18 years old. There is no maximum age of entry or age limit for paying contributions into these types of ISAs.  

The JISA and LISA rules are more restrictive. For a JISA the child must be under 18 years old. And for a LISA the individual must be 18 or over and under 40 years old at entry, and contributions can only be paid until age 50. 

Contribution limits

Given the tax-efficiency of ISAs, there are limits on the maximum contributions that can be paid. Contribution limits apply for each tax year and, if they are not used in one tax year they can’t be carried forward to the next tax year, and will be lost. 

Up to £20,000 can be paid across stocks and shares, cash or innovative finance ISAs each tax year. It is possible to pay into multiple ISAs (except LISAs) of the same type in the same tax year.  

Contributions to LISAs are restricted to £4,000 for each tax year and this will count towards the overall £20,000 limit. For example, you could decide to save £8,000 into a stocks and shares ISA, £2,000 into an innovative finance ISA, £4,000 into a LISA and £6,000 into a cash ISA in the current tax year.   

JISA contributions for children are considered separately and are limited to a maximum of £9,000 for the current tax year.

Flexible ISAs

The Flexible ISA was introduced in April 2016 and can be either stocks and shares or cash ISAs (not JISAs and LISAs). Not all ISAs are Flexible ISAs, the ISA manager needs to apply and register their ISA as a Flexible ISA with HMRC. The ISA Terms and Conditions must also include provisions confirming it is a Flexible ISA. 

If an ISA is a Flexible ISA, the investor can encash some or all of their investment and replace this in the same tax year as the encashment, without this being counted towards that year’s subscription limit.

For example

If Peter decides to invest £12,000 into a flexible ISA and then withdraws £5,000 of it in the same tax year, he can pay up to £13,000 into his ISA for the same tax year (£5,000 to replace what was withdrawn and £8,000 from his unused ISA subscription allowance). It is important to remember that the “additional” amount of £5,000 must be paid back in the same tax year and into the same ISA account that it was taken from.

It is possible to withdraw from the current tax year and previous tax years subscriptions, however withdrawals will count against any subscription in the current tax year first, with any excess amount treated as coming from the previous year.

Treatment of ISAs on death

When the ISA holder dies the proceeds will form part of their estate for Inheritance Tax purposes and can be paid to the Executors once Grant of Probate has been issued. The ISA remains tax free until the third anniversary of the ISA holder’s death. After this it will be assessable to income tax and/or capital gains tax. 

The surviving spouse/civil partner of the deceased will have an entitlement to an Additional Permitted Subscription (APS) on top of their own annual ISA subscription limit. The APS amount is the higher of the value of the deceased’s ISA at the time of their death, or the value at the third anniversary of their death. 

The APS must be used no later than 180 days from the completion of the administration of the estate (or three years after the date of death if later). 

The APS does not have to be used to invest in the same ISA or same ISA type as the deceased spouse/civil partner, nor do the ISA funds have to be inherited by the surviving partner. 

For example

If Joe died and left his ISA funds valued at £35,000 to his youngest son Edward, his wife Rosie could invest a maximum of £55,000 into ISAs (£20,000 of her own allowance and £35,000 APS).



ISAs can be transferred from one provider to another at any time, provided the receiving ISA manager is happy to accept the transfer. 

The funds can be transferred to the same or different type of ISA, for example from a cash ISA to a stocks and shares ISA or vice versus. If funds are transferred out of a LISA to a different type of ISA before age 60, the 25% withdrawal fee will apply.   

All current year contributions must usually be transferred, however the regulations changed on 6 April 2024 to allow partial transfers provided the terms and conditions of the account allows for this. Funds from previous years subscriptions can be transferred in full or part. 

If an ISA transfer occurs to the same type of ISA then contributions to both are permitted in one tax year. This means if £10,000 is paid into a stocks and shares ISA this tax year with XYZ Ltd and those funds are later transferred to ABC Ltd stocks and shares ISA, an additional £10,000 can be paid into ABC Ltd ISA in that same tax year. 

Where an individual aged 16 or 17 holds an existing cash ISA which they wish to transfer, all current year subscriptions must be transferred and the original account must be closed.