What is an ISA?

An ISA – Individual Savings Account – is a tax-efficient wrapper you can use to save or invest money without paying UK tax on the interest, dividends, or capital gains you earn. Think of it as a protective shield that stops the tax man (HMRC) from taking a slice of your returns.

For someone putting away money for a house deposit, topping up their retirement savings, or just building a safety net, ISAs make a lot of sense. You can access your money when you need it (in most cases), and you won't lose chunks of your gains to tax along the way. Whether you're saving cash or investing in shares and funds, an ISA keeps things simple and tax-free.

How do ISAs work?

The mechanics are straightforward. You can open an ISA with AJ Bell and contribute money up to your annual allowance, which is currently set at £20,000*. Any growth, interest, or income generated inside an ISA stays tax-free. You don’t report it on a tax return, and you don’t pay capital gains tax when you sell investments within the account.

Once the tax year ends (every 5 April), your contribution allowance resets. Any unused allowance doesn’t roll over, so it’s a “use it or lose it” situation each year.

*Except for Lifetime ISAs where the annual limit is £4,000.

What is an ISA allowance?

Your ISA allowance is the maximum amount you can contribute across all your ISAs in a single tax year. For the 2025/26 tax year, that’s £20,000. This applies to most adult ISA types – Cash ISAs, Stocks and shares ISAs, and Innovative finance ISAs.

The Lifetime ISA has a separate £4,000 annual limit, which counts towards your overall £20,000 allowance. Junior ISAs have their own £9,000 limit, independent of the adult allowance.

The allowance resets every 6 April. If you only contribute £12,000 this year, you can’t carry the remaining £8,000 forward – it will disappear.

Benefits of ISAs

The headline benefit is obvious: no tax on returns. But there’s more to it than that.

• Tax-free returns: No income tax on interest or dividends. No capital gains tax when you sell investments at a profit. This matters especially for higher earners who’ve already used up their personal savings allowance.
• Flexibility: Most ISAs let you withdraw money whenever you need it. Stocks and shares ISAs don’t lock you in, which is useful if your circumstances change.
• Protection for long-term growth: The more money you make, the more tax you’d potentially pay on gains in a standard investment account, such as a Dealing account. Hold them inside an ISA and the more you make, the more you keep.
• Higher earners benefit most: If you’re a higher or additional-rate taxpayer, you have a £500 dividend allowance per year but after that you’ll pay 32.5% or 39.35% on dividend income outside an ISA. Within an ISA you’ll pay nothing.

Let’s say you’ve maxed out your Stocks and shares ISA for a few years and built up a £100,000 portfolio. If that were in a standard Dealing account, you’d face capital gains tax on profits above the annual exemption (currently £3,000). In an ISA, you can sell and reinvest freely without worrying about tax bills.

How much can you put in an ISA?

For 2025/26, you can contribute up to £20,000 across all eligible ISAs. You can split this however you like – £10,000 in a Cash ISA and £10,000 in a Stocks and shares ISA, for example.

If you accidentally exceed the limit, HMRC will pick it up at the end of the tax year, when your providers send them details of the money they’ve received from you. The excess amount loses its tax-free status, and you may face penalties. Most providers, including AJ Bell, have systems in place to prevent overpayments, but it’s worth keeping track yourself if you hold multiple ISAs.

Types of ISAs

What is a Stocks and shares ISA?

A Stocks and shares ISA lets you invest in shares, funds, bonds, and investment trusts – all within a tax-free wrapper. It’s ideal for long-term growth, especially if you’re comfortable with investment risk.

With it, you can build a portfolio from thousands of funds and shares. You can manage it yourself or use ready-made portfolios if you prefer a hands-off approach. There’s no tax on dividends or capital gains, and you can withdraw money whenever you need it.

What is a Lifetime ISA?

The Lifetime ISA is designed for first-time buyers or retirement savers aged 18–39. You can contribute up to £4,000 per year, and the government adds a 25% bonus (up to £1,000 annually).

It’s available as a Stocks and shares option, so your money can grow through investments. You can use it to buy your first home (worth up to £450,000) or keep it until you’re 60 for retirement. If you withdraw for any other reason, you’ll face a 25% penalty, which eats into your original contributions too.

What is a Junior ISA?

A Junior ISA is a tax-free account for children under 18. Parents or guardians manage it for the child, and they can access the money at 18.

It lets you invest up to £9,000 per year for your child. It’s a solid option for parents looking to build a nest egg for university, a first car, or a house deposit. The account belongs to the child, so once they turn 18, it automatically converts to an adult ISA.

How many ISAs can I have?

You can hold as many ISAs as you like from previous years, and since April 2024 you can also contribute to more than one ISA of the same type in the same tax year. So, in 2025/26, you could pay into multiple Stocks and shares ISAs, multiple Cash ISAs, and multiple Innovative Finance ISAs – but you can still only contribute to one Lifetime ISA per tax year.

If you’ve got old ISAs sitting with different providers, you can transfer them to AJ Bell without losing the tax-free status (more on that below).

Tax on ISAs

ISAs are tax-free: no income tax on interest; no tax on dividends; no capital gains tax when you sell.

Outside an ISA, you’d face:

• Income tax: Basic-rate taxpayers can earn up to £1,000 tax-free from interest on savings, with higher-rate taxpayers getting a £500 allowance. Additional-rate taxpayers get nothing. Once the allowances are used up, income tax is payable at 20%, 40% and 45% depending on your tax bracket.
• Dividend tax: £500 tax-free (as of 2025/26). Beyond that, you’ll pay 8.75%, 33.75%, or 39.35% depending on your tax band.
• Capital gains tax: £3,000 annual exemption. Above that, you’ll pay 18% or 24%.

ISAs sidestep all of this. If you’re a higher earner with investments outside an ISA, you may be paying thousands of unnecessary taxes each year. Find out if you should consider using an ISA.

The end of the tax year (5 April) is a key date. Many investors top up ISAs in March to use the full allowance before it resets.

Who can open an ISA?

You’ll need proof of identity and address to open an account with AJ Bell, which you can do online in minutes.

Can you transfer over an ISA?

You can transfer ISAs between providers without losing tax-free benefits, but you must do it properly.

To transfer an ISA to AJ Bell, you’ll need to first open and log into your AJ Bell account and request a transfer. You’ll need details of your current provider. We’ll handle the rest, contacting the old provider and moving the funds across. Transfers can take a few weeks, depending on the provider.

You can transfer previous years’ ISAs at any time. If you want to transfer this year’s ISA, you must move the entire balance – AJ Bell can’t do a partial transfer of the current year’s subscriptions. 

ISA withdrawals and payments explained

Most ISAs let you withdraw money whenever you like. With a Stocks and shares ISA, you’d sell your investments first, then withdraw the cash. There’s no tax to pay on withdrawals.

With a flexible ISA, if you take money out and replace it in the same tax year, it doesn’t count towards your annual allowance. This is useful if you need short-term access to cash but want to keep your ISA maxed out. Please note that AJ Bell doesn’t offer a flexible ISA.

Lifetime ISAs are different. If you withdraw before you turn 60 (unless for buying your first home), you’ll pay a 25% charge on what you withdraw. This could mean you get back less than you paid in.

AJ Bell ISA FAQs