How can I shelter income in an ISA?
Answered 17 March 2026
Here is a summary of how income can be sheltered in an ISA under UK tax law.
What the law says
The statutory basis for the ISA income tax exemption is found in ITTOIA 2005, s.694, which empowers the Treasury to make regulations providing that income of an individual from investments under a plan "is exempt from income tax". Those regulations may specify the description of individuals who may invest and maximum investment limits. The operative regulations are the Individual Savings Account Regulations 1998 (SI 1998/1870).
The exemption extends to Capital Gains Tax as well: TCGA 1992, s.151 empowers the Treasury to make regulations providing that an individual who invests under a plan shall be entitled to relief from CGT in respect of the investments, and the Chapter 3 of Part 6 of ITTOIA 2005 provisions apply (with modifications) to those CGT regulations.
Provided the relevant conditions are satisfied, qualifying investments held in an ISA are exempt from both Income Tax and Capital Gains Tax.
HMRC guidance / practice
How the ISA works as a tax shelter:
- An ISA is described as a "tax-free wrapper" — investors pay no tax on any income or capital gains from their ISA savings and investments, and they do not have to declare ISA income or gains to HMRC or even notify their HMRC office that they hold an ISA.
Types of ISA and what can be held:
- There are currently two ISA components: a cash ISA and a stocks and shares ISA.
- The stocks and shares ISA can hold shares listed on a recognised stock exchange (relaxed in August 2013 to include shares traded on a wider range of markets), units in unit trusts, shares in OEICs, and shares in investment trusts.
- Life insurance policies can also be held within a stocks and shares ISA (since 6 April 2005) or a Lifetime ISA (since 6 April 2017), provided certain conditions are met.
- Employees can transfer shares directly from a Share Incentive Plan to a stocks and shares ISA without CGT consequences, provided the transfer is made within 90 days of the shares ceasing to be subject to the plan; the value counts towards the ISA limit for the year.
Annual subscription limits:
- ISAs were simplified from 1 July 2014, with equal limits for cash and investments. For 2014–15, the limit was £15,000 in cash, investments or a mixture of both.
⚠️ Note: The £15,000 figure cited above is from the 2014–15 tax year. The annual ISA subscription limit is updated each year by the Treasury. You should check the current limit on GOV.UK, as it has increased since then (it has been £20,000 per year for recent tax years, though this could not be confirmed from the available sources).
Void ISAs:
- If the ISA conditions are breached (e.g. the investor was not eligible to subscribe), the ISA becomes void and the tax exemption is lost.
On death:
- An ISA can be treated as a continuing account after the death of the investor (where inherited by a spouse or civil partner), retaining its tax advantages. No new money can be paid in, but growth remains tax-free. This status lasts until the administration of the estate is complete, the ISA is closed, or three years have passed since death — whichever is sooner.
Citation sources
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