ISA Calculator

Q: What is an ISA and how does it work?

An Individual Savings Account (ISA) is a tax-free wrapper for savings and investments. You can save up to £20,000 per tax year (2025/26) across all ISA types. Any interest, dividends, or capital gains within an ISA are completely tax-free. Types include Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, and Lifetime ISA.

Q: Should I choose a Cash ISA or Stocks & Shares ISA?

Cash ISAs offer guaranteed returns with no risk to capital, ideal for short-term savings (under 5 years). Stocks & Shares ISAs offer potentially higher returns over the long term but capital is at risk. Historically, equities have outperformed cash over periods of 5+ years. Consider your time horizon and risk tolerance.

Q: How does the Lifetime ISA (LISA) work?

The LISA is for 18-39 year olds saving for a first home (up to £450,000) or retirement (age 60+). You can save up to £4,000/year and receive a 25% government bonus (up to £1,000/year). Withdrawing for any other reason incurs a 25% penalty on the total withdrawal, meaning you lose your bonus plus 6.25% of your own money.

Q: Do I need to declare ISA income on my tax return?

No. ISA income and gains do not need to be reported on your Self Assessment tax return. All interest, dividends, and capital gains within an ISA wrapper are completely tax-free. This is one of the key advantages of ISAs — they simplify your tax affairs while protecting your returns from HMRC.

Project your ISA growth for 2025/26. Compare Cash ISA vs Stocks & Shares ISA, calculate Lifetime ISA bonus, and see how much tax you save by investing in an ISA wrapper.

Project the growth of your Stocks & Shares ISA over time

Current ISA balance

Your existing ISA balance

Annual contribution

Max £20,000 across all ISAs in 2025/26

Expected annual return

FTSE All-Share historical average: ~7-8%

Investment period

years

Adjust for inflation?

Assumed inflation rate

Bank of England target: 2%

Your income tax band

For tax-saving comparison vs taxable account

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How to Use This Calculator

ISA Growth tab

Enter your current ISA balance, annual contribution (max £20,000), expected return rate, and investment period. The calculator projects your ISA balance over time and shows how much tax you save compared to holding the same investments outside an ISA wrapper. Expand "More options" to adjust for inflation and compare tax savings across basic, higher, and additional rate bands.

Cash vs S&S ISA tab

Compare a Cash ISA and Stocks & Shares ISA side by side. Enter your contribution amount, Cash ISA rate, expected S&S return, and investment horizon. The calculator shows the crossover year where S&S overtakes Cash, and provides a risk-adjusted comparison with worst/best case ranges based on your risk tolerance.

Lifetime ISA tab

Calculate your LISA savings for a first home or retirement. Enter your age, annual contribution (max £4,000), and choose your goal. See the total government bonus, projected growth, and what happens if you need to withdraw early (25% penalty). For property purchases, see how your LISA stacks up as a deposit.

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The Formula

ISA growth uses compound interest, with all returns kept tax-free:

ISA Balance = (Previous Balance + Annual Contribution) × (1 + Return Rate)

After N years with annual contributions:
Balance = InitialBalance × (1 + r)^N + Contribution × [((1 + r)^N − 1) / r] × (1 + r)

Tax Saved = ISA Balance − Taxable Account Balance
(Taxable account pays income tax on interest, CGT on gains, dividend tax on dividends)

LISA Bonus = Annual Contribution × 25% (max £1,000/year)
LISA Early Withdrawal Penalty = Total Withdrawal × 25%

The key advantage of an ISA is tax-free compounding. In a taxable account, you lose a portion of each year's returns to income tax (on interest), capital gains tax (on growth), and dividend tax. Over 20+ years, the tax drag on a taxable account can reduce your wealth by 20-40% compared to an ISA.

The Personal Savings Allowance (£1,000 basic rate, £500 higher rate, £0 additional rate) means some interest is tax-free outside an ISA too — but an ISA protects all returns regardless of amount or tax band.

Example

James — Software Developer, 28, Manchester

James earns £55,000 (basic rate taxpayer). He contributes £15,000/year into a Stocks & Shares ISA, expecting a 7% annual return over 20 years. He has an existing ISA balance of £12,000.

ISA Growth tab

Current balance£12,000

Annual contribution£15,000

Expected return7%

Investment period20 years

Projected ISA balance£703,526

Total contributions£312,000

Investment growth£391,526

Tax saved vs taxable (20% rate)~£78,305

By using an ISA, James keeps every penny of his £391,526 growth. In a taxable account at the basic rate, he'd lose roughly £78,305 to income tax, CGT, and dividend tax over the same period.

Lifetime ISA tab

James also has a LISA for his first home. He contributes the maximum £4,000/year and receives the 25% government bonus.

Annual contribution£4,000

Government bonus (25%)£1,000/year

After 5 years (6% return)£29,876

Target property£300,000

LISA as deposit~10%

James's LISA provides nearly a 10% deposit on a £300,000 property, with £5,000 coming entirely from government bonus money.

FAQ

What is an ISA and how does it work? ▼

An Individual Savings Account (ISA) is a tax-free wrapper provided by the UK government. Any interest, dividends, or capital gains earned within an ISA are completely free from income tax, capital gains tax, and dividend tax. The annual ISA allowance for 2025/26 is £20,000, which you can split across Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, and Lifetime ISA. You must be a UK resident aged 18+ to open a Stocks & Shares ISA (16+ for Cash ISA).

What is the ISA allowance for 2025/26? ▼

The ISA allowance for the 2025/26 tax year (6 April 2025 to 5 April 2026) is £20,000 total across all ISA types. Within this, the Lifetime ISA limit is £4,000 (which counts towards the £20,000). Since April 2024, you can open and pay into multiple ISAs of the same type in the same tax year. Unused allowance cannot be carried forward — it’s use-it-or-lose-it each tax year.

Should I choose a Cash ISA or Stocks & Shares ISA? ▼

It depends on your time horizon and risk tolerance. Cash ISA: capital is protected (up to £85,000 FSCS), returns are guaranteed, ideal for short-term goals (1-5 years) or emergency funds. Stocks & Shares ISA: higher potential returns but capital is at risk, best for 5+ year horizons. Historically, UK equities have returned 7-8% annually over the long term, outperforming cash. Many investors use both: Cash ISA for near-term goals, S&S ISA for long-term wealth building.

How does the Lifetime ISA (LISA) work? ▼

The LISA is available to 18-39 year olds. You can save up to £4,000/year and the government adds a 25% bonus (up to £1,000/year). You can use it for two purposes: buying your first home (property up to £450,000) or retirement (penalty-free withdrawal from age 60). Withdrawing for any other reason incurs a 25% penalty on the total amount withdrawn — this means you lose your bonus plus 6.25% of your own contributions. You can contribute until age 50. The LISA allowance counts towards your £20,000 ISA allowance.

Do I need to declare ISA income on my tax return? ▼

No. ISA income and gains are completely tax-free and do not need to be reported on your Self Assessment tax return. This applies to all types of ISA income: savings interest, share dividends, and capital gains from selling investments. This is a significant administrative advantage — no record-keeping for HMRC, no complex CGT calculations, and no risk of accidentally under-reporting income.

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