What is an ISA allowance?
Maxing out your ISAs each tax year is a good problem to have. It means you’re already making the most of one of the UK’s best tax shelters.
An ISA allowance is the maximum amount you can pay into your ISA accounts each tax year while keeping your returns free from UK income tax and capital gains tax. The ISA allowance for 2025/26, which ends at midnight on 5th April 2026, is £20,000. And, it’s the same for the 2026/27 tax year which starts on 6th April this year.
Many savers ask, “should I max out my ISA allowance?” – and the answer usually depends on your financial goals. Using more of your allowance can help shield a greater portion of your savings and/or your investments from tax, but there are also appealing alternatives such as pension contributions which provide for retirement.
It’s also useful to keep track of your ISA allowance used so you don’t unintentionally exceed the limit. You can keep track of contributions on your Charles Stanley Direct app. Importantly, people sometimes question, “does transferring an ISA use your allowance?” – but it doesn’t. So long as the transfer follows the ISA transfer rules rather than withdrawing and re‑depositing the money.
But once you hit the annual £20,000 ISA limit, what next? The good news is that you’re not out of options. You’ve still got plenty of tax‑efficient ways to keep building long‑term wealth.
Start by looking at your pension
Your pension is often the next port of call once you’ve maxed out your ISA – or even before. For higher earners, pensions can be especially attractive. The tax relief you receive on contributions effectively lowers the cost of saving and boosts how hard your money works. Every pound that escapes tax today is a pound that can compound over the long term – and that compounding really adds up over the decades.
What’s more, your investment returns within a pension account are tax free too. However, withdrawals are taxable during retirement – beyond the first 25% withdrawn which is usually tax free under current rules.
Many people don’t use their annual pension allowance in full – currently £60,000 – subject to earnings. And if you haven’t used your full pension allowance in previous years, pension carry forward lets you bring forward unused allowances from the last three tax years, provided earnings in the tax year you make the extra contributions can support it. This can be particularly valuable for those who experience fluctuating income, or those who simply haven’t contributed much to their pension in the past.
However, the picture becomes more complicated if your income is high enough for the ‘tapered annual allowance’ to apply. If your taxable income exceeds £200,000, and your ‘adjusted income’ goes over £260,000, your pension allowance begins to reduce by £1 for every £2 of income above that threshold. In these situations, the calculations can get tricky, so discussing your options with a qualified Financial Planner can be worthwhile.
Use ISA allowances across your family
Even if your own ISA is full, you may still be able to shelter more money from tax by making use of ISA allowances available to family members.
If you have a spouse or civil partner, it’s worth checking whether they’ve used their full ISA allowance. If they haven't, you can gift them money to top it up. The key thing to remember is that once the money enters their ISA, it's legally theirs – but for couples who pool resources this is often not an issue.
If you’re investing for children or grandchildren, Junior ISAs provide another route. These come with a £9,000 annual limit per child and grow free of income tax and capital gains tax. Once the child turns 18, the Junior ISA automatically converts to an adult ISA in their name, and control passes to them, so it’s worth keeping that in mind. Still, it’s a highly tax‑efficient way to build a nest egg for the next generation.
Open a General Investment Account (GIA)
A GIA can be a next step for investors once their Stocks & Shares ISA is full. Unlike an ISA, a GIA has no limits on how much you can invest, and you can access your money whenever you like. The trade‑off is that there are no built‑in tax advantages – income, interest, and capital gains may all be taxable.
However, that doesn’t mean a GIA can’t be run tax efficiently. Many investors use the annual capital gains tax exemption – currently £3,000 – to gradually realise profits. Plus, the ability to transfer assets to a spouse or civil partner can offer two sets of allowances that can potentially reduce the overall tax bill.
Plus, don’t forget the annual allowances for interest and dividends. The Personal Savings Allowance (unless you're an additional‑rate taxpayer or have used it elsewhere) and the £500 dividend allowance can help soften the tax impact further. With some planning, a GIA can sit alongside your ISA as part of a broader tax-efficient investment strategy.
Consider premium bonds
If you're looking for a home for cash rather than investments, premium bonds can be a useful option. Offered by NS&I and backed by the UK government, they come with no risk to your capital. Instead of earning interest, you enter a prize draw each month. The prizes are tax‑free, and while it’s not guaranteed, holding a larger number of bonds tends to create a reasonably steady return over time.
You can hold between £25 and £50,000, and you need to have owned the bonds for a full calendar month before they’re eligible for the draw. For higher‑rate or additional‑rate taxpayers –who may otherwise pay tax on savings interest – premium bonds can be an appealing part of the mix, and an alternative to Cash ISAs, that brings a little fun and excitement.
Explore government bonds
UK government bonds (gilts) might not sound exciting, but they offer a unique tax benefit: any profits you make on them are exempt from capital gains tax. This can make certain gilts particularly attractive for investors in higher tax brackets, essentially ones where most of the return comes from price growth rather than interest.
Of course, gilts need to fit sensibly into your broader investment plan. They aren’t right for every portfolio, but for more experienced investors able to understand their characteristics, or those advised by an investment manager, they can provide a tax‑efficient complement to other holdings or an alternative to cash deposits when held to redemption.
Weigh up paying down your mortgage
If you have high‑cost unsecured debt, like credit cards or pay-day loans, clearing it should always come before investing. But even once that’s done, using spare cash to pay down your mortgage can be a smart move. Reducing your mortgage balance earlier means paying less interest over the long term and potentially freeing up more of your income for other goals.
Although investing may generate higher returns than a loan's interest cost, markets also come with the risk of losses. That uncertainty is a factor in itself, which can make the dilemma of overpaying your mortgage versus investing a very personal one.
Look at higher‑risk alternatives: VCTs and EIS
For investors with a higher appetite for risk, venture capital trusts (VCTs) and the enterprise investment scheme (EIS) can offer generous tax incentives if they are held for certain time periods. These schemes encourage investment in early‑stage UK businesses, and as a result, the potential returns – and the risks – are higher.
VCTs currently offer income tax relief on investments up to £200,000 a year, and dividends from the shares are tax‑free. However, from April 2026, the rate of income tax relief for new investments will fall from 30% to 20%, which may reduce their appeal.
EIS investments are riskier still as they invest in a single business rather than multiple ones. However, the tax incentives are also more generous. You can receive 30% income tax relief on up to £1mn of investments each year, or up to £2mn if you invest in knowledge‑intensive companies. EIS also offers capital gains tax deferral, allowing you to reinvest gains from other assets into EIS companies and potentially postpone the tax bill.
These can be powerful tools but should only be used where suitable, ideally with professional advice. They are not intended to be cornerstones of a portfolio but rather smaller, high‑risk additions.
Offshore bonds could be an option for some
Offshore bonds, issued by overseas insurance companies, allow investments to grow efficiently and with tax due when money is withdrawn. For people who expect to be in a lower tax bracket in future – for example, in retirement – the ability to defer tax on investment returns can be attractive.
Offshore bonds also come with a further useful feature: the ability to withdraw up to 5% of the original investment each year without an immediate tax charge. If you don’t use this allowance, it can be carried forward to future years, offering some flexibility. Offshore bonds can be complex and won’t suit everyone, so it’s worth discussing them with a qualified adviser if you’re considering them.
I’m not sure what to do – what’s my next step?
One size never fits all when it comes to tax-efficient planning. Having a focused conversation with a financial professional can help you to take control, giving you freedom and peace of mind. With Charles Stanley Direct Financial Coaching, you’ll get a consultation with a financial planner to help steer you towards your goals based on your circumstances.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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