What is ISA? UK Definition 2026/27
Quick Answer
Individual Savings Account - a tax-free wrapper for savings and investments.
Definition of ISA
An Individual Savings Account (ISA) is a tax-efficient savings and investment account. Interest, dividends, and capital gains within an ISA are completely tax-free. The annual allowance is £20,000 across all ISA types: Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA.
ISA — Key Facts for 2026/27
| Annual allowance | £20,000 |
| Lifetime ISA bonus | 25% up to £1,000/year |
| LISA limit | £4,000/year |
| Tax on gains/income | Zero |
How ISA Works — Example
- 1Investment: £20,000 over 10 years
- 2Growth: 7% annually = £39,343
- 3Gain: £19,343
- 4Outside ISA: ~£3,500 CGT (higher rate)
- 5Inside ISA: £0 tax
- 6ISA benefit: £3,500+ saved
How ISA Affects Your Tax
ISAs provide valuable tax-free growth. Maximising ISA allowances each year builds tax-efficient wealth. The Lifetime ISA offers a 25% bonus for first home or retirement, though restrictions apply.
Official HMRC Guidance on ISA
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 ISA
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.