Originally published at: ISA and SIPP allowances 2025/26: Key tax year limits – InvestEngine Insights
The start of the 2025/26 tax year means your tax-free ISA and SIPP allowances have been reset. Continue reading to find out how you can invest tax-efficiently.
This article will cover how an ISA differs from a SIPP or pension, and the benefits of investing in each. We’ll also take a look at the best practices for evaluating your portfolio, in terms of risk levels and provider, to ensure your investments are making the most of your tax-free allowances.
What is the 2025/26 ISA allowance?
The maximum ISA allowance for the 2025/26 tax year is £20,000.
This means that investors can contribute up to £20,000 into an ISA and pay no tax on the returns, including both income and capital gains.
It’s important to note that if you didn’t use your whole ISA allowance last year, you can’t carry it forward.
ISA transfers may have implications for your investments. Please consider all factors before deciding to transfer. Tax treatment is dependent on individual circumstances and is subject to change.
What is the 2025/26 SIPP allowance?
The maximum allowance for all pension contributions (including your SIPP, workplace pensions etc.) in the 2025/26 tax year for most people is £60,000 or 100% of their earnings, whichever is lower. But high earners with adjusted incomes above £260,000 may have their allowance tapered to as little as £10,000.
Your adjusted income determines whether your pension allowance needs to be adjusted. It includes:
- All taxable income – such as salary, bonuses, rental income, dividends, and savings interest.
- Employer pension contributions – plus any contributions made on your behalf (e.g. through salary sacrifice or your employer’s defined contribution).
- Any other pension contributions you make – particularly relevant for high earners who top up pensions directly.
Thus, adjusted income is your total gross income plus all pension contributions (from any source). So if your adjusted income is above £260,000, your pension annual allowance is reduced by £1 for every £2 of adjusted income over £260,000, down to a minimum of £10,000.
Unlike an ISA, SIPP allowance can be carried forward into the new tax year. If you haven’t used your full allowance in the past three tax years, you can carry forward unused amounts.
This allows you to make larger contributions in a single year, potentially maximizing your tax relief. Ensuring you don’t exceed these limits is crucial to avoid tax penalties.
It’s important to note that once you contribute to your pension, you can’t take the money out until you’re 55 (57 from 2028) – once it’s in, it’s inaccessible.
In summary, here are the key differences between the ISA and SIPP allowance for the 2025/26 tax year.
| ISA | SIPP | |
| Maximum allowance | £20,000 | For most people: £60,000 or 100% of their earnings, whichever is lower. For people earning above £240,000: As little as £10,000 |
| Can it be carried forward | No | Yes, up to 3 years |
| Can it be withdrawn | Yes | Not until you’re 55 (57 from 2028) |
How to make the most of your allowances
If you’re planning on investing this tax year, then now’s the time to consider how best to use your allowances.
Review what you’ve invested in.
A sensible starting point is to ensure your current investments are in line with your appetite for risk i.e. your willingness to bear financial risk with the expectation of generating a potential profit.
Determining your individual risk profile involves assessing factors like how long you’re investing for, how reliant you are on your investments, and your attitude towards risk.
If you’re willing and able to tolerate high amounts of risk in your portfolio, then your portfolio can consist mainly of equities. If not, then it should consist of lower-risk investments like bonds.
Consider your choice of platform.
It might be worth considering whether you’re happy with your current choice of investment platform.
Investors will value different things when it comes to what they look for in their platform – whether that be ease of use, customer service, cost, or range of investment options.
A portfolio review provides a chance to reassess whether you’re happy with your current provider, and investigate whether there are any more suitable alternatives available on the market.
Don’t try to time the market.
Given it’s impossible to predict when and where market crashes are going to occur, it’s more sensible to stay invested consistently than try to enter or exit the market in periods of volatility.
Think about whether you want to invest a lump sum immediately, or drip-feeding cash into the market. Both are excellent ways to give your portfolio the best chance of growing over time.
What are the benefits of investing early?
- Spread your payments. Very few of us have £20,000 just lying around. Instead, if you choose to drip-feed percentage of your earnings into the market each month, your investments will grow steadily over time. This can be especially compelling during periods of market volatility. You can do this using InvestEngine’s Savings Plan, which allows you to automate your top-ups from weekly to monthly.
- Take advantage of compound returns. If you had put £6,000 a year into a simulated medium-risk stocks and shares ISA on the first day of each tax year from 6 April 1999 (when ISAs were introduced) to 6 April 2022, you’d be 9% better off than if you’d invested the same amount on the last day of each tax year. It might be prudent to maximize the time your money is working for you.
To recap, making the most of your ISA and SIPP allowances early in the tax year can give your investments more time to grow and help you stay on top of your financial goals.
It’s like they say: slow and steady wins the race.
FAQs
- What is the ISA allowance for the 2025/26 tax year?
You can invest £20,000 tax-free into your ISA, which means you can invest up to that amount without paying tax. However, unused allowance from the previous year cannot be carried forward.
- How much can I contribute to a SIPP in the 2025/26 tax year?
Most people can contribute up to £60,000 or 100% of their earnings, whichever is lower. For high earners (adjusted income over £260,000), the allowance may taper down to as little as £10,000. Please speak to a financial adviser if in doubt.
- Can I carry forward unused allowances from previous years?
You can’t carry forward unused ISA allowances, but you can carry forward unused SIPP allowances from up to three previous tax years (only if you were a member of a registered pension scheme during those years) allowing for larger contributions in a single year.
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.