ISA Calculator — Tax-Free Savings Growth

ISAs shelter savings and investments from all UK income tax and capital gains tax. The annual ISA allowance is £20,000 per tax year, which can be split across Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs in any combination. Once invested, all interest, dividends, and capital gains within the ISA wrapper are completely tax-free, with no reporting requirement to HMRC.

Cash ISA projections use the stated AER (Annual Equivalent Rate) to calculate growth. A fixed-rate Cash ISA locks your money for 1-5 years at a guaranteed rate, while easy-access ISAs offer flexibility but typically lower rates. The calculation compounds interest annually or monthly depending on the product. For a £20,000 deposit at 4.5% AER over 5 years with annual compounding, the balance reaches £24,931.

Stocks and Shares ISA projections use assumed growth rates since returns are variable. Historical UK equity returns have averaged approximately 7-8% nominal (4-5% real) over the long term, but with significant year-to-year volatility. The calculator models growth at multiple assumed rates and shows the range of outcomes. Platform fees (0.15-0.45%) and fund charges (0.1-1.5%) reduce the effective return and are deducted in the projection.

The £20,000 ISA allowance — flexible across types. You can split £20,000 across Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, and Lifetime ISA (the LISA has its own £4,000 cap, counted toward the £20k). The whole £20k can go into one type or be split. Unused allowance can NOT be carried forward — use it or lose it before midnight 5 April each year. You can have multiple ISAs of each type (since 2024 reforms allow this — you can pay into multiple Cash ISAs in one tax year).

Cash ISA vs Stocks & Shares — when to use which. Cash ISA: lower returns (3-5% AER in 2026) but capital-protected; suit short-term (under 5 years) goals. Stocks & Shares ISA: higher long-term returns (~7-10% historic) but volatility; suit 10+ year horizons. Innovative Finance ISA: peer-to-peer lending, riskier but yields 5-10%. The 'cash drag' on Stocks & Shares ISAs left in cash is a common mistake — invest it within 6-12 months of contribution.

Lifetime ISA — 25% bonus but locked. Open between ages 18-39. Maximum £4,000/year (counts toward £20k overall allowance). Government adds 25% bonus on contributions (max £1,000/year). Withdraw tax-free either: (1) for first home purchase up to £450,000, or (2) after age 60 for retirement. Other withdrawals = 25% penalty (recovers bonus PLUS a slice of your contribution). Best for under-40s saving for first home + retirement boost.

What happens if you exceed the £20,000 allowance. HMRC won't generally claim the excess back automatically — your ISA provider should reject the surplus or refund it. If excess slips through, HMRC can repair retrospectively (treats excess as taxable savings outside ISA wrapper). Track via gov.uk Personal Tax Account. If you've genuinely exceeded by mistake, contact your provider; minor accidental breaches are usually forgiven on first occurrence.