Wealth Management Consultant, Andrew Goulter, takes a closer look at how ISAs can help you save for your future.
ISAs are wrappers in which cash and some forms of investment can be held and where returns are accrued free of tax. Any withdrawals from ISAs, whether capital or natural income, are also tax free. As such, it is often desirable to maximise funds held via these vehicles.
The maximum ISA subscription is £20,000 per annum and cannot be carried forward. This means monies need to have been placed into an ISA before 5 April 2026 or the allowance for the current tax year is gone.
In this time of higher interest rates, ISAs can be an attractive means of holding cash, as any interest earned will always be tax free. This can be especially true if the cash is held in a fixed term account, as the interest rate available is often higher. Alternatively, stocks and shares ISAs allow for investments to be held in a tax-efficient manner, whether these be self-managed or managed on your behalf by an adviser.
Cash ISAs can currently be transferred to stocks and shares ISAs and vice versa. It is also possible to transfer ISA funds between providers and this may be attractive if there is a particular investment you wish to hold in this way. However, it is important to transfer funds from one ISA to another without withdrawing them as, if funds are withdrawn, they cannot necessarily be replaced without using up your ISA allowance.
Some ISAs (‘Flexible ISAs’) do allow for funds to be withdrawn and replaced in the same tax year without the return of funds being considered ‘new monies’, which would use up some or all of the annual subscription allowance.
The Treasury has seemed keen to promote the use of ISAs, raising allowances over the years (at least until it was frozen at the current £20,000 in 2017/18). Special purpose schemes like Lifetime ISAs (LISAs) were introduced, which can provide a Government bonus of 25% on savings of up to £4,000 per year until age 50, if certain criteria are met – the fund being used for the purchase of your first home or for retirement purposes after age 60.
You can also open a Junior ISA (JISA) for your child(ren) or contribute to accounts set up for your grandchild(ren). While these are similar to an adult ISA, it is important to note that you can only invest up to £9,000 per tax year per child.
I often incorporate ISAs into my clients’ retirement planning as they can be particularly useful as an income source, whether by generating a natural income or by gradually depleting the capital value.
In either case, no tax liability would be generated, allowing for the funds to be sustainable for a longer period. Some clients see their ISAs as a means to defer drawing on their pensions. This might be to allow for the pension funds to be invested over a longer period and may accrue more in the way of investment returns. Alternatively, it might be to maximise the funds that can be left to the next generation
The more funds are held via ISAs at or near retirement, the more powerful a part they can play in a wider, later-life income strategy. As such, looking to make regular ISA contributions from a relatively young age is usually wise.
For example, putting £200 per month into an ISA from age 35 could deliver a pot worth £102,103 by age 60, assuming an investment return of 4% per annum net of fees. If that pot were then to be drawn on at age 60, circa £4,000 per annum could be generated tax free without depleting the capital value.
However, it’s important to note that Rachel Reeves’ Autumn Budget in November 2025 announced significant changes to ISA rules taking effect from 6 April 2027. While the overall ISA allowance will remain at £20,000 per annum, how you can use it will depend on your age.
For those under 65, new contributions to cash ISAs will be limited to a maximum of £12,000 per annum. The remaining £8,000 can be invested in a stocks and shares ISA, or up to the full £20,000 allowance. This shift encourages younger savers towards longer-term investment strategies. The £12,000 limit applies to new annual contributions only, not to existing cash ISA balances.
Meanwhile, those aged 65 and above retain complete flexibility to contribute the full £20,000 in cash each year if they wish, preserving choice for those who may prioritise capital preservation and ready access to funds.
While you can currently transfer between cash ISAs and stocks & shares ISAs in both directions, from 6 April 2027 transfers from stocks & shares ISAs to cash ISAs will be prohibited for those under 65. However, you will still be able to transfer from cash ISAs to stocks & shares ISAs.
As with many financial products, ISAs typically form only part of the picture in retirement and they are often used to complement, or are complemented by, other types of vehicles.
With a wide array of investment options surrounding ISAs and with a multitude of planning strategies incorporating their use, it is important to be properly advised. We are always happy to have a conversation!
Content correct at time of writing (December 2025).
This article has been produced for information purposes only. With investments, your capital may be at risk and past performance is not a guide to future returns. Your investments can go down as well as up. ISA rules apply and may change. Mattioli Woods Limited is authorised and regulated by the Financial Conduct Authority.
