Last updated: 14 October 2026
What are the tax implications of ISAs?
ISAs are tax-free wrappers. Interest, dividends and capital gains on investments held in an ISA are free of income tax and CGT, and you don’t need to report them on your tax return. You can put up to £20,000 a year into ISAs in 2026/27, split between cash, stocks and shares, innovative finance and Lifetime ISAs. ISA income doesn’t count towards your Personal Savings Allowance, dividend allowance or adjusted net income. ISAs do form part of your estate for inheritance tax, although a surviving spouse gets an extra allowance.
Tax treatment of each type
| ISA type | What’s tax-free | Annual limit in 2026/27 |
| Cash ISA | Interest | Up to £20,000 (£12,000 for under-65s from April 2027) |
| Stocks and shares ISA | Dividends, interest and gains | Up to £20,000 |
| Innovative finance ISA | Peer-to-peer interest | Up to £20,000 |
| Lifetime ISA | Growth plus 25% government bonus | £4,000 (within the £20,000) |
| Junior ISA | All income and gains | £9,000 per child |
What isn’t tax-free
- Losses in an ISA can’t be offset against gains elsewhere
- Foreign withholding tax on overseas dividends may still be deducted
- Lifetime ISA withdrawals not for a first home or after 60 carry a 25% charge
- IHT applies on death
ISAs on death
When you die, your ISA keeps its tax-free status until the estate is wound up, up to 3 years. Your spouse or civil partner can pay in an additional permitted subscription equal to the value of your ISA, on top of their own allowance.
Example
Grace has £100,000 in a stocks and shares ISA paying £4,000 a year in dividends. She’s a higher rate taxpayer. Outside an ISA, the dividends would cost her £1,251 in tax at 35.75% after the £500 allowance. Inside the ISA, she pays nothing. When she sells some funds with a £15,000 gain, there’s no CGT. If she had held the funds outside, the gain above £3,000 would be taxed at 24%.
Moving savings into ISAs
You can “Bed and ISA” by selling investments outside an ISA and buying them back inside, using your allowance. Gains on the sale outside count for CGT, so use your £3,000 exemption.
Rates rising from 2026 and 2027
Dividend tax rose by 2 percentage points from April 2026, and savings tax rates rise by 2 points from April 2027. That makes ISAs more valuable for higher rate taxpayers.
Common mistakes
- Exceeding the annual limit (excess may be voided)
- Withdrawing from a non-flexible ISA and losing allowance
- Thinking ISAs are free of IHT
- Not transferring between ISAs correctly
Records to keep
Keep annual statements and transfer confirmations, especially if you have ISAs with several providers.
ISAs and benefits
ISA savings count as capital for means-tested benefits such as Universal Credit, even though the income is tax-free. Capital over £6,000 reduces Universal Credit, and over £16,000 stops it, so ISAs don’t protect savings for benefit purposes.
Frequently asked questions
Do I report ISA income?
No.
Can a non-resident keep an ISA?
Yes, but can’t pay in new money.
Can I have a cash ISA and a stocks ISA?
Yes, within the overall limit.
Are ISA withdrawals taxable?
No.
Related: ISA now or the new tax year, interest from a closed account and building society bonuses.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with ISA and savings tax. See our tax refund accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
