ISA allowance 2026/27 explained: types, rules and how to split it

The total ISA allowance for the 2026/27 tax year (6 April 2026 to 5 April 2027) remains at £20,000. This is the combined limit across all ISA types — you can split it however you like, but the total across all your ISAs cannot exceed £20,000 in a single tax year. The allowance is per person, so a couple can shelter up to £40,000 between them. And it's use-it-or-lose-it: you can't carry unused allowance into the next year. If you only use £5,000 this year, the remaining £15,000 is gone, and your next year's allowance is still just £20,000. One change is coming: from 6 April 2027, under-65s will be able to put no more than £12,000 a year into Cash ISAs, with the rest of the £20,000 available for Stocks and Shares, Lifetime or Innovative Finance ISAs (the £12,000 cap doesn't apply if you're 65 or over).

There are four types of ISA available to UK residents: Cash ISAs work like regular savings accounts but interest is tax-free. Stocks and Shares ISAs let you invest in funds, shares, and bonds with tax-free growth. Lifetime ISAs (LISAs) give you a 25% government bonus on up to £4,000 per year, for first-time house purchases or retirement. Innovative Finance ISAs let you hold peer-to-peer loans tax-free, though these are higher risk. You can now pay into multiple ISAs of the same type in a single tax year — a rule change from 2024 that gives you more flexibility.

If you're saving for something in the next 1-3 years, a Cash ISA is your best bet. Your money is protected by the FSCS (up to £120,000 per person per authorised firm since 1 December 2025), you earn tax-free interest, and you can access your money when you need it. Rates move with Bank Rate (3.75% at the time of writing, October 2026), so compare current best buys on MoneySavingExpert or our savings accounts and Cash ISAs guide. Fixed-rate Cash ISAs can pay more if you can lock your money away for 1-2 years. Cash ISAs are especially valuable if you're a higher or additional rate taxpayer, as your Personal Savings Allowance is reduced to £500 or £0 respectively.

If you're investing for 5+ years, a Stocks and Shares ISA shelters your investments from capital gains tax and dividend tax. This matters more than you might think — outside an ISA, you'd pay up to 24% on capital gains and up to 39.35% on dividends above your (very small) annual allowances. Most people invest in diversified index funds within their S&S ISA, which offers broad market exposure with low fees. Popular choices include global tracker funds that invest across thousands of companies worldwide. The key is time in the market — the longer your ISA investments are left to grow, the more powerful the tax-free compounding becomes.

The Lifetime ISA is unique because the government adds 25% to your contributions — put in £4,000 and the government adds £1,000. That's a guaranteed 25% return before any interest or investment growth. But there are strict rules: you must be aged 18-39 to open one, you can contribute until age 50, and withdrawals are only penalty-free for buying your first home (up to £450,000) or after age 60. Withdrawing for any other reason incurs a 25% penalty on the total amount — which actually means you lose money, not just the bonus. If you're a first-time buyer saving for a deposit, the LISA is almost certainly the best place for your money.

There's no single right way to split your £20,000 allowance — it depends on your goals. A common approach: fill your LISA first if you're eligible (£4,000 for the 25% bonus), then put short-term savings into a Cash ISA, and allocate the rest to a Stocks and Shares ISA for long-term growth. If you're a basic rate taxpayer with less than £1,000 in annual interest, the Personal Savings Allowance means your regular savings accounts are already tax-free — so prioritise your S&S ISA over a Cash ISA. Higher and additional rate taxpayers should prioritise Cash ISAs more, as their PSA is much lower.

Don't let your allowance expire unused — even putting in a small amount is better than nothing. Don't hold cash long-term in a Stocks and Shares ISA (it won't grow). Don't withdraw from a LISA for non-qualifying purposes (the penalty is brutal). Don't assume all ISAs are equal — compare rates and fees regularly, as the difference between providers can be significant. And don't forget: ISAs are per person. If you have a partner, make sure both of you are using your allowances.

The ISA allowance is one of the most generous tax breaks available to UK residents, yet many people underuse it. Whether you choose a Cash ISA for safety, a Stocks and Shares ISA for growth, or a Lifetime ISA for the bonus, the key is to start using your allowance — even small amounts add up over time. The 2026/27 tax year ends on 5 April 2027, so if you haven't used this year's allowance yet, there's still time.