April 5th is the end of 2025/26 tax year and is an important date when it comes to ISAs and Junior ISAs as it’s the deadline to use any remaining contribution allowances you have. Unused allowances do not roll over to the 2026/27 tax year.
The allowances for this 2025/26 are £20,000 for adult ISAs and £9,000 for Junior ISAs and are the maximum amount of contributions allowed into those accounts. For adult ISAs this can be into one ISA, into multiple ISAs of the same type (e.g. two stocks & shares ISAs) or into different types (cash, stocks & shares and lifetime, which has a separate limit of £4,000 a year).
For Junior ISAs, a child is only allowed to hold one of each type (cash or stocks & shares) so the contribution limit applies on total contributions that are made. Unlike ISAs, where the only person who can contribute to the account is the account holder, Junior ISAs can accept contributions from different people and the limit applies across all contributions received regardless of source.
Why use your ISA allowances?
A huge benefit of saving and investing within an ISA or Junior ISA is that they are tax-free. This means you will not have to pay income tax or Capital Gains Tax (CGT) on any interest, dividends, or investment profits earned within the accounts. This is something that can catch people out when it comes to saving and investing in other types of accounts as due to tax changes over recent years, an increasing number of people could find themselves liable.
Capital Gains Tax is a tax on the profit (gain, not total sale amount) made when an asset such as shares, second homes, or valuable personal possessions that has increased in value is sold. There is a tax free allowance for capital gains but it has been reduced significantly by the Chancellor over recent years. The capital gains allowance is currently £3,000 but any gains made over that amount are taxable. The CGT tax rate was also increased in October 2024 and varies depending on the asset that has been sold and what rate of income tax you pay. For example: for gains on selling stocks and shares, the CGT rate is 24% for higher income rate tax payers and 18% for basic income rate tax payers.
Although the £3,000 allowance may sound like a lot, you could easily become liable for paying tax. If for example you invested £10,000 in shares and you sold them 10 years later after they had doubled in value, you would currently have to pay ~£1,700 in tax. This is why it makes sense to shield these gains within an ISA or Junior ISA.
It is a similar story with income tax which you are potentially liable for on interest that you earn. There is a tax free Personal Savings Allowance which is £1000 for those on the basic income rate, £500 for higher rate tax payers and nothing for those paying the additional rate. But as with CGT, changes in the tax system, particularly the freezing of income tax allowances, means that an increasing number of tax payers are falling into higher rates, so taking advantage of saving into an ISA makes sense to protect you from paying more tax.
The limits of £20,000 and £9,000 may be above what you’re able to contribute within a tax year but that shouldn’t put you off from saving what you can afford and using as much of the allowance that you can. Small amounts can add up and make a real difference especially when saving for the long-term as you’ll see the benefits of compounding.
Compounding, also known as the ‘snowball effect’ is the process of earning interest on interest (if you save in cash) or returns on returns (if you invest), so the longer you leave your money invested, the more potential for growth.
Although stocks & shares carry the risk of the value dropping, many people choose investing over saving for longer time periods as growth can compensate for the ups and downs. For example, over the last 130 years the probability of UK equities out performing cash was 70% over any 2 year periods and 91% over any 10 years*.
At Beanstalk we offer a stocks & shares Junior ISA and adult ISA. You can contribute in many different ways with a range of savings tools we offer in the app. For example you can set up a regular contribution which is collected monthly by Direct Debit, make a one-off top up using a direct bank transfer or Instant Bank Transfer, or even round up your purchases to invest the small change.
If you have a Junior ISA with us, then family or friends can also contribute towards your child’s allowance. Our unique Invite tool allows you to link grandparents and others to your child’s account so they can save directly into their JISA and our Gift Links tool is perfect for one-off top ups, especially at birthdays and other special occasions.
So make sure you don’t forget to use your ISA allowances!
*Source: Barclays Equity Gilt Study 2024