What is Individual Savings Account? UK Definition 2026/27
Quick Answer
Tax-free wrapper for savings and investments - £20,000 annual limit.
Definition of Individual Savings Account
An ISA (Individual Savings Account) is a tax-free savings and investment wrapper. Interest, dividends, and capital gains within ISAs are completely tax-free. The annual allowance is £20,000 across all ISA types. Types include Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs (£4,000 limit), and Innovative Finance ISAs.
Individual Savings Account — Key Facts for 2026/27
| Annual limit | £20,000 |
| LISA limit | £4,000 (within £20k) |
| Tax on gains | None |
| Withdrawal | Tax-free |
How Individual Savings Account Works — Example
- 1Investment outside ISA: £20,000
- 2Growth to £30,000 over 5 years
- 3CGT (outside ISA): £1,680 (24% of £7,000 gain after AEA)
- 4Same investment in ISA: £0 tax
- 5Dividends outside ISA taxed; inside ISA tax-free
How Individual Savings Account Affects Your Tax
ISAs are one of the most valuable tax shelters available. Using your full annual allowance consistently builds significant tax-free wealth. Once in an ISA, investments grow and can be withdrawn completely tax-free.
Official HMRC Guidance on Individual Savings Account
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: ISAsFrequently Asked Questions about Individual Savings Account
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.