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Summary
An Individual Savings Account (ISA) is a tax-efficient wrapper for savings and investments available to UK residents. All interest, dividends, and capital gains earned within an ISA are completely tax-free. The annual allowance is £20,000 across all ISA types for the 2025/26 tax year.
The calculator projects your ISA growth over time and compares it to an equivalent taxable General Investment Account (GIA) to show exactly how much tax you save by using your ISA allowance.
How it works
ISA types
There are four main ISA types, all sharing the £20,000 total annual allowance:
| ISA type | Tax benefit | Notes |
|---|---|---|
| Cash ISA | Interest earned is tax-free | Like a savings account but no income tax on interest |
| Stocks & Shares ISA | Dividends and capital gains tax-free | For investing in funds, shares, bonds |
| Lifetime ISA (LISA) | Tax-free growth + 25% government bonus | Max £4,000/year. For first home or retirement (60+) |
| Innovative Finance ISA | Interest from peer-to-peer lending tax-free | Higher risk than Cash ISA |
Allowance rules
- The £20,000 limit is the total across all ISA types in a single tax year (6 April to 5 April)
- Lifetime ISA contributions are capped at £4,000/year within the £20,000 total
- Use it or lose it — unused allowance cannot be carried forward
- Flexible ISAs allow you to withdraw and re-deposit within the same tax year without using more allowance
Lifetime ISA bonus
The government adds a 25% bonus to your LISA contributions, up to £1,000/year (25% of the £4,000 maximum). The bonus is paid monthly. Over the maximum contribution period (age 18 to 50), this could total up to £32,000 in free money.
Withdrawal penalty: If you withdraw for any reason other than buying a first home (up to £450,000) or reaching age 60, a 25% penalty is applied to the withdrawal amount. This effectively means you lose more than just the bonus.
The formula
ISA growth (tax-free compound growth)
Where
For Lifetime ISA, the effective annual contribution is the user’s contribution plus the 25% government bonus (capped at £1,000/year).
GIA tax drag (for comparison)
In a taxable General Investment Account, two taxes reduce your returns:
1. Dividend tax (annual): For Stocks & Shares investments, dividends above the £500 allowance are taxed:
| Tax band | Dividend tax rate |
|---|---|
| Basic (20%) | 8.75% |
| Higher (40%) | 33.75% |
| Additional (45%) | 39.35% |
2. Capital Gains Tax (on disposal): When you eventually sell, gains above the £3,000 annual exemption are taxed:
| Tax band | CGT rate (shares) |
|---|---|
| Basic | 18% |
| Higher / Additional | 24% |
The calculator models dividend tax as an annual drag and CGT as a one-off charge at the end of the investment period.
Worked examples
Example 1: Stocks & Shares ISA
£10,000/year in a Stocks & Shares ISA for 20 years at 7%
Annual contribution
= £10,000/yr
ISA value after 20 years
= £409,955
Total contributed
= £200,000
Tax-free growth
= £209,955
Result
ISA value: £409,955. A basic-rate taxpayer saves approximately £47,000 in tax vs a GIA.
Example 2: Lifetime ISA with government bonus
£4,000/year in a Lifetime ISA for 10 years at 5%
Annual contribution + bonus
= £5,000/yr effective
LISA value after 10 years
= £62,889
Total user contributions
= £40,000
Total government bonus
= £10,000
Investment growth
= £12,889
Result
LISA value: £62,889 — of which £10,000 is free government money.
Inputs explained
- ISA type — Cash (savings interest), Stocks & Shares (investment growth), or Lifetime ISA (with 25% bonus). Determines the default return rate and whether the government bonus applies.
- Existing ISA balance — any amount already in your ISA from previous tax years.
- Annual contribution — how much you plan to add each year. Capped at £20,000 (or £4,000 for LISA).
- Expected annual return — the growth rate you expect. Cash ISAs typically earn 3–5%, while Stocks & Shares ISAs historically average 7–10% (with more volatility).
- Time period — how many years you plan to invest for.
- Tax bracket — your income tax band. Used only for the GIA comparison to calculate how much tax you’d pay without the ISA wrapper.
Outputs explained
- ISA value — your projected balance after N years of tax-free compound growth.
- Total contributed — the sum of your own contributions (excluding LISA bonus).
- Tax-free growth — the investment returns earned within the ISA wrapper.
- Tax saved vs GIA — the difference between ISA and GIA outcomes, representing the total tax benefit.
- ISA allowance gauge — visual indicator of how much of the £20,000 annual allowance is used.
- Government bonus (LISA only) — the total 25% bonus earned over the period.
- ISA vs GIA chart — year-by-year comparison showing how the tax-free ISA diverges from the taxed GIA over time.
Assumptions & limitations
- Returns are modelled as a constant annual rate — in reality, investment returns vary year to year. Cash ISA rates are typically fixed for a term.
- The GIA comparison assumes a 3.5% dividend yield for Stocks & Shares (approximating the FTSE 100), with the remainder as capital growth.
- CGT is modelled as a single disposal at the end of the period. In practice, investors may crystallise gains annually to use the CGT allowance, reducing the tax drag.
- The calculator does not model the LISA 25% withdrawal penalty — it assumes you meet the qualifying criteria (first home purchase or age 60+).
- Inflation is not accounted for — all values are nominal.
- The GIA model for Cash ISA uses the same CGT framework as Stocks & Shares. In reality, cash savings are taxed as income (via the personal savings allowance) rather than as capital gains. This slightly understates the tax advantage of Cash ISAs for higher-rate taxpayers.
- ISA allowance is per individual — couples can effectively shelter £40,000/year between them.
Verification
| Test case | Input | Expected ISA value | Source |
|---|---|---|---|
| S&S ISA, basic rate | £0 start, £10k/yr, 7%, 20yr | £409,955 | FV of annuity formula |
| Lifetime ISA, higher rate | £0 start, £4k/yr, 5%, 10yr | £62,889 | FV of annuity with £1k bonus |
| Cash ISA, additional rate | £50k start, £20k/yr, 4%, 5yr | £169,159 | FV of lump sum + annuity |
| Zero return | £0 start, £10k/yr, 0%, 10yr | £100,000 | Pure contributions |
| LISA bonus cap | £4k/yr LISA, 0%, 5yr | £25,000 | £4k + £1k bonus × 5yr |
Sources
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