Tax Allowances: How Much Can You Put Away Each Year Tax-Efficiently

When it comes to ISAs and pensions, you might have heard people talking about annual allowances, the tax year and even “carrying forward” unused pension allowance.

But what does all of that actually mean?

As part of our partnership with AJ Bell, we’re making some of the terminology around saving and investing easier to understand, starting with how ISA and pension tax allowances work.

This article is for general information only and isn’t financial advice. Tax rules depend on individual circumstances and can change.

How Much Can You Put Into an ISA?

For the 2026/27 tax year, the overall ISA allowance is £20,000. This means an eligible individual can contribute up to £20,000 across their ISAs during the tax year.

One of the main benefits of an ISA is its tax-efficient status. Eligible interest, investment growth and dividends generated within an ISA are free from UK Income Tax and Capital Gains Tax.

You can also have different types of ISA, such as a Cash ISA and Stocks and Shares ISA, but the £20,000 overall annual allowance applies across your ISAs rather than separately to each one.

What Happens If You Don’t Use Your ISA Allowance?

This is where the phrase “use it or lose it” comes in. The UK tax year runs from 6th April to 5th April the following year. If you don’t use your full ISA allowance during that tax year, you generally can’t carry the unused amount into the next one.

For example, if someone contributed £5,000 to their ISA during a tax year, they couldn’t add the remaining £15,000 to the following year’s allowance. Once the tax year ends, that unused allowance is gone.

That doesn’t mean everyone should aim to use the full £20,000 allowance. How much someone saves or invests will depend entirely on their own financial circumstances and goals.

How Does the Pension Annual Allowance Work?

Pensions work a little differently.

The standard annual pension allowance is currently £60,000 for the 2026/27 tax year. Broadly, tax-relieved personal contributions are also limited by your relevant UK earnings.

However, pension tax rules can be more complicated than ISA rules. The amount an individual can contribute with tax advantages may be affected by factors including their earnings, employer contributions, whether they have already accessed a pension flexibly and whether rules such as the tapered annual allowance apply.

So while £60,000 is the standard annual allowance, it shouldn’t be viewed as a universal contribution limit that applies in exactly the same way to everyone.

Can You Carry Forward Unused Pension Allowance?

Unlike an ISA, it may be possible to carry forward unused pension annual allowance from the previous three tax years, provided the relevant conditions are met.

This means that, in some circumstances, someone could potentially make pension contributions above the standard annual allowance without an annual allowance tax charge by using unused allowance from previous years.

Again, this is an area where the rules become more detailed, so individual circumstances matter.

The important difference to understand is simple: ISA allowance generally can’t be carried forward. Pension annual allowance potentially can.

Why Does the End of the Tax Year Matter?

You’ll probably hear a lot more about ISAs and pensions as 5th April approaches. That’s because it marks the end of the UK tax year.

For ISAs in particular, any unused annual allowance generally disappears when the new tax year begins. A fresh annual allowance then becomes available from 6th April, subject to the rules in force at that time.

While investing earlier gives money more time in the market, investing always involves risk and there is no guarantee of growth. Decisions shouldn’t be made simply because a tax-year deadline is approaching.

ISA vs Pension: A Quick Recap

Both ISAs and pensions can provide tax-efficient ways to save or invest, but their annual allowance rules aren’t the same.

For the 2026/27 tax year, the overall ISA allowance is £20,000, and unused allowance can’t be carried into the following year.

The standard pension annual allowance is £60,000, although individual limits and tax relief depend on personal circumstances. Subject to certain conditions, unused pension annual allowance may also be carried forward from the previous three tax years.

You don’t need to become a tax expert overnight. Understanding what terms such as annual allowance, tax year and carry forward actually mean is a good starting point.

Through our partnership with AJ Bell, Manchester Young Professionals is helping to make conversations around money, saving and investing easier to understand, so our community can feel more informed about the financial world around them.

Important Information

This content is for general educational and informational purposes only and does not constitute financial, investment or tax advice. Tax treatment depends on individual circumstances and tax rules can change. Pension and ISA eligibility and allowances are subject to applicable rules. The value of investments can go down as well as up, and you may get back less than you invest.

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