Are ISA Allowances Changing for 2025?

For the time being, the ISA allowance for 2025-2026 will remain £20,000 for adult ISAs and £9,000 for junior ISAs.

But this could be subject to change in future tax years, with talk of the cash ISA allowance being cut to encourage more money into stocks and shares ISAs.

The March Spring Statement was uneventful from a personal finance point of view, but the document flagged up one key possible change to cash ISAs.

ISA Allowances Frozen Until 2030

The ISA allowance was bumped up from £15,240 in 2016-2017 to £20,000 in 2017-2018, but this was frozen until 2030 in the Autumn Budget of 2024. Savers and investors were effectively put on notice that allowances would not be uprated in line with inflation for five years. This increases the likelihood of the government raising its tax take over the period.

Outside of the ISA, the personal savings allowance allows £1,000 of interest for basic-rate taxpayers to be earned tax free and £500 for higher-rate taxpayers. This allowance has fallen in recent years.

What Are the Main Types of ISA?

The most popular types are cash, stocks and shares, junior and lifetime ISAs. Previous iterations include the help to buy ISA. The UK government website has an overview.

Why Should I Choose an ISA?

It’s generally understood that ISAs are “tax-free” but it’s worth explaining what this actually means. Firstly, you don’t need to include your ISA on your annual tax return (if you file one), as tax is not paid on dividends or savings interest received within the ISA. Another advantage is that ISAs are free of capital gains tax, so you don’t need to share your investment returns with HMRC. But ISAs are NOT automatically exempt from Inheritance Tax or IHT so if they’re large enough, your ISAs may form part of your estate.

How does the ISA Allowance Work?

Each individual has an annual ISA allowance. Under the current limits, a family of two adults and two children could put away £58,000 a year into these accounts (£20,000 times two and £9,000 times two).

The size of the allowance means few people will “max out” their allowance every year, however. As an adult you can open one type of each ISA every tax year, but the allowance applies to the money you spread across these accounts—it is not per account. It’s worth pointing out that the lifetime ISA counts towards the overall ISA allowance, so a saver using up the £4,000 would be left with an allowance of £16,000 rather than £20,000.

Do Cash ISAs Beat Inflation?

While inflation is just below 3%, many cash ISA rates offer interest rates above 4%. But most are still below the official Bank of England interest rate of 4.5%.

Are ISAs Flexible?

Some are. Rules were updated a few years ago which mean with some accounts you can withdraw money from your ISA and not lose that part of your allowance. If you put £10,000 into an ISA and withdraw £2,000, then, you still have £12,000 of that year’s allowance left to invest. These accounts are known as flexible ISAs. If this feature is important to you, make sure you check whether it’s available before opening your account.

What if I Don’t Have £20,000 to Invest in an ISA?

Many providers allow you to open an account with as little as £1. You can add small amounts throughout the year, either through a regular investing plan or through ad hoc investments. This means you don’t have to put your money into an account in a single lump sum.

Is Age Important For ISAs?

You need to be 16 or over to open your own cash ISA, and 18 or over to buy a stocks and shares ISA. For the lifetime ISA, you need to be over 18 but under 40. Parents can open a junior ISA for their child any time from birth to age 16 (and grandparents can contribute to it too).

Is There an ISA Time Limit?

The allowance runs from tax year to tax year rather than by calendar year and it’s “use it or lose it”, so you can’t roll over unused allowances. The limit resets every April though. Financial advisers have been encouraging clients to maximize their allowances in the 2024-2025 tax year ahead of any possible reductions.

What About the British ISA?

The idea of the “British” ISA formed under the previous Conservative government. As well as a nod to patriotism, the plan was to incentivize investments in UK equities. Some countries have already experimented with this model.

Despite much fanfare and a great deal of discussion by savings industry commentators, Labour has confirmed there will be no “British ISA”.

Can I Mix and Match ISA Accounts?

Yes. You can open one of each type of ISA every tax year. You could feasibly have a cash ISA, lifetime ISA, stocks and shares ISA and split your £20,000 between them as you please. A typical split would be £10,000 in cash and £10,000 in stocks and shares.

You cannot, however, open two of the same sort of ISA in a single tax year. This can be a problem when a cash ISA provider introduces a better yielding product into the market, and a saver has already committed their cash to a different provider.

The same rule applies to junior ISAs. With that in mind, it’s likely that you may end up with ISAs from a number of providers over the years. If you’re looking to consolidate your savings into one pot without using up your allowance for that year, some accounts allow transfers in.

Ollie Smith and Sunniva Kolostyak contributed to this story.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.