Originally published at: A complete guide to ISAs for the 2025/26 tax year – InvestEngine Insights
In this guide, you’ll find everything you need to know about ISAs in the 2025/26 tax year, from the yearly tax-free allowance to how to transfer from one provider to another.
Table of contents
- What is an ISA?
- How do I open an ISA?
- What are the tax rules of an ISA?
- How much can I invest into an ISA in one tax year?
- Can you split your allowance across different ISAs?
- What are flexible ISAs?
- How do ISA transfers work?
- What are the different types of ISA?
- Tips for maximising your ISA
- Why choose an InvestEngine ISA?
What is an ISA?
An Individual Savings Account (ISA) is a government-backed savings or investment account that allows people in the UK to save or invest money without paying tax on their returns.
When you deposit money into an ISA, it’s placed within a ‘tax-wrapper’, which shields your returns—whether they come from interest, dividends, or capital gains—from tax. This makes ISAs one of the most efficient ways to save or invest.
There are several types of ISAs designed to suit different financial goals, such as saving for retirement, purchasing a first home, or simply growing your wealth tax-free. ISAs are available to UK residents over the age of 16 (cash ISAs) or 18 (stocks and shares ISAs, innovative finance ISAs, and Lifetime ISAs).
How do I open an ISA?
Opening an ISA is straightforward. Many providers offer easy setup processes online, allowing you to select the type of ISA you want and start contributing immediately.
When choosing one, consider your financial goals. Are you looking for short-term savings, long-term growth, or a mix of both? Each type of ISA offers different benefits and features, so selecting the right one is essential.
What are the tax rules of an ISA?
ISAs are designed to protect your savings or investments from tax, making them one of the most efficient vehicles for growing your wealth.
For the 2025/26 tax year, the annual capital gains tax allowance remains at the reduced level of £3,000. This reduction highlights the value of ISAs, which let you grow your investments without being affected by capital gains tax or income tax.
Additionally, you don’t need to declare any interest, income, or capital gains from an ISA on your annual tax return.
How much can I invest into an ISA each tax year?
The maximum ISA allowance remains at £20,000 for the 2025/26 tax year. Each tax year, investors can contribute up to £20,000 into an ISA and pay no tax on the returns, including both income and capital gains. This tax efficiency makes ISAs an excellent choice for long-term investing and wealth-building.
If you don’t use your full allowance within the tax year, you cannot carry it forward into the next year—so it’s a case of “use it or lose it.” Maxing out your ISA allowance each year can lead to substantial long-term benefits, especially when combined with the power of compounding returns.
Can you split your allowance across different ISAs?
Yes, you can split your £20,000 ISA allowance across different types of ISAs in a single tax year. Investors can now also hold and contribute to more than one ISA of the same type within the same tax year. For example, you can open and invest in multiple stocks and shares ISAs in the same tax year, allowing for greater flexibility and experimentation with different platforms or providers without incurring tax penalties.
What are flexible ISAs?
Flexible ISAs are a newer type of ISA that allow you to withdraw and replace money within the same tax year without affecting your annual £20,000 allowance.
For example, if you deposit £15,000 into a flexible ISA and later withdraw £5,000, you can replace that £5,000 later in the tax year and still have £5,000 remaining of your £20,000 allowance. Flexible ISAs are particularly useful if you might need short-term access to your funds but still want to maximise your tax-free savings and investments.
How do ISA transfers work?
Transferring an ISA is a simple process, but there are a few key things to keep in mind:
- Full and partial transfers: From the 2025/26 tax year, you can now transfer part of your ISA from one provider to another. This includes transferring specific contributions or holdings, adding significant flexibility to the process.
- No impact on your allowance: Transferring an ISA doesn’t affect your current tax year’s allowance, as long as you follow the proper process.
To transfer your ISA, contact your new provider, and they’ll guide you through the process. Avoid withdrawing funds yourself, as this could result in losing your ISA’s tax-free benefits.
What are the different types of ISAs?
Here’s a quick overview of the main ISA types available:
- Cash ISA: A straightforward savings account offering tax-free interest.
- Stocks and shares ISA: Allows you to invest in a range of assets, such as shares, bonds, and ETFs, with returns shielded from tax.
- Lifetime ISA (LISA): Designed to help savers under 40 save for their first home or retirement, with a 25% government bonus on contributions up to £4,000 per year.
- Junior ISA (JISA): A savings account for children under 18, with an annual allowance of £9,000.
- Innovative finance ISA (IFISA): Enables tax-free returns from peer-to-peer lending or crowdfunding investments.
- Flexible ISA: Offers the ability to withdraw and replace funds within the same tax year without affecting your allowance.
Tips for maximising your ISA
Take advantage of tax efficiency
Each tax year, investors can contribute up to £20,000 into an ISA and pay no tax on the returns, including both income and capital gains. This makes ISAs an excellent choice for long-term investing and wealth-building.
Automate your investments
Automation tools can simplify investing. Many providers allow you to set up automatic contributions, selecting how often and how much you want to invest. This minimises admin and enables consistent, disciplined investing over time.
Avoid over-trading
Frequent trading can lead to unnecessary costs and potentially lower returns. Focus on long-term strategies rather than trying to time the market or chase short-term gains.
The impact of zero and low-fee ISAs
When choosing an ISA provider, the fees associated with your account can significantly impact your long-term returns. Zero and low-fee ISAs are particularly appealing for investors seeking to maximise growth while keeping costs minimal.
Why fees matter
Even small fees can add up over time and erode the value of your investments. For example, an investor switching from a portfolio with fees of 2% annually to one with fees of 0.25% could see a 96% larger portfolio after 40 years, assuming identical returns before fees. This illustrates how significant the impact of lower fees can be on long-term wealth.
Benefits of zero and low-fee ISAs
- More money invested: With lower fees, a greater proportion of your money remains invested, allowing for higher potential returns.
- Compounding advantage: Reduced fees mean more of your investment grows over time, compounding your returns.
- Flexibility: With low costs, you can adjust your investments more freely without worrying about high charges eating into your returns.
Why choose an InvestEngine ISA?
InvestEngine offers a range of ISA options tailored to suit different investment goals. Whether you prefer to take control of your portfolio or rely on professional management, InvestEngine provides flexible solutions with a focus on cost efficiency.
DIY portfolios
- Full control: Select from over 700 ETFs to construct a portfolio that aligns with your financial goals
- Zero platform fees: DIY portfolios have no platform charges, ensuring more of your money stays invested.
Managed portfolios
- Expert management: Portfolios are managed by professionals and tailored to your risk profile
- Low fees: Managed portfolios are charged at just 0.25% annually, excluding ETF fees.
LifePlans
LifePlans are designed for investors seeking a balanced, risk-adjusted approach. Options include LifePlan 100, 80, 60, or 40, which indicate the split between equities and bonds.
Important information
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.
This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.
Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.