ISA Allowance & Savings Tax Calculator UK 2025/26
ISAs shelter savings from income tax on interest and capital gains. The annual ISA allowance is £20,000 per person in 2025/26. Outside an ISA, basic rate taxpayers get a £1,000 Personal Savings Allowance (PSA); higher rate taxpayers get £500; additional rate taxpayers get nothing. This calculator works out how much tax you could save by using your ISA allowance.
ISA allowance 2025/26: £20,000/person. Lifetime ISA: max £4,000/year, 25% bonus (max £1,000/year), age 18–39 to open, use for first home (up to £450,000) or age 60+. PSA: £1,000 basic rate, £500 higher rate, £0 additional rate. Since April 2024: can pay into multiple ISAs of same type in one year. ISA allowance cannot be carried forward.
ISA Types — Which Is Right for You?
| ISA type | Annual limit | Best for | Notes |
|---|---|---|---|
| Cash ISA | £20,000 | Short-term savings, emergency fund | Instant access or fixed terms; no tax on interest |
| Stocks & Shares ISA | £20,000 | Long-term growth (5+ years) | No CGT or income tax on returns; investment risk |
| Lifetime ISA | £4,000 (within £20,000) | First home or retirement top-up | 25% bonus; age 18–39 to open; penalties for non-qualifying withdrawals |
| Innovative Finance ISA | £20,000 | Higher-risk lending/crowdfunding | Higher potential returns; significant default risk |
| Junior ISA (JISA) | £9,000 per child | Saving for children | Separate allowance; child cannot access until 18 |
The Case for Using Your ISA First
With savings rates at 4–5% in 2025, the £1,000 PSA for basic rate taxpayers covers £20,000 in savings before tax kicks in. But higher rate taxpayers only get £500 tax-free interest, meaning they pay tax on interest above that from just £10,000 of savings at 5%. Additional rate taxpayers pay tax on all savings interest outside an ISA. If you are a higher or additional rate taxpayer with significant savings, maximising your ISA allowance every year should be a priority.
For stocks and shares ISAs, the benefit compounds over time — no capital gains tax, no dividend tax, and no reporting required. Over a 20–30 year investment period, the tax shelter can be worth tens of thousands of pounds compared to holding the same investments outside an ISA.
Lifetime ISA — Bonus and Penalties
The LISA bonus of 25% (up to £1,000/year) is one of the best risk-free returns available. If you are aged 18–39 and saving for your first home or retirement, contributing to a LISA is almost always worth doing. But the withdrawal penalty is severe: if you withdraw for any reason other than first home purchase, terminal illness, or after age 60, you pay a 25% penalty on the entire withdrawal — which effectively takes back the bonus plus 6.25% of your own money. Only put money in a LISA that you are confident you will not need for other purposes.
Frequently Asked Questions
Yes. You can transfer your ISA to a different provider at any time without losing your ISA status. The transfer must be done through the ISA transfer process (not by withdrawing and re-depositing). Current year subscriptions can be transferred in full; previous years’ ISAs can be transferred in full or in part. Always use the official transfer process — withdrawing and redepositing uses up your current year allowance unnecessarily.
ISA interest and returns are completely tax-free and do not need to be declared on a tax return. However, ISA savings and their value are counted as capital for the purpose of means-tested benefits such as Universal Credit (£6,000 disregard applies; over £16,000 bars entitlement entirely) and Pension Credit. The fact that returns are tax-free does not mean the capital itself is invisible to the benefits system.