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

What happens if you don’t use your annual ISA allowance?

The new financial year is well underway, and that means that for every UK taxpayer the annual ISA allowance resets.

From 6 April 2026 until 5 April 2027, up to £20,000 can be saved or invested without taxation, in a Cash ISA, Stocks and Shares ISA, Junior ISA, Lifetime ISA and/or an Innovative Finance ISA. And the easiest way to maximise your ISA allowance is to start early.

Why the ISA allowance matters

The annual ISA allowance is the best opportunity for savers and investors to maximise their returns. Not only are these funds exempt from taxation, but any interest payments, dividends or returns can be reinvested tax free so that you can benefit from the effect of compound inflation. That means you can effectively earn interest on your interest, year after year, without any tax payments taken. Over time this can really add up.

However, you can only invest £20,000 until 5 April 2027. After this date, the new tax year begins and the ISA allowance resets. If you haven’t used the previous year’s allowance, you lose it.

Use it or lose it – what the catchphrase really means

ISA allowances do not roll over. Once the tax year ends on 5 April, any unused portion of your allowance is gone for good. You can’t carry it forward, and you can’t make up for it in future years by contributing more than the annual cap.

For example, if you only invest £5,000 in one tax year, you cannot contribute £35,000 the next year to compensate. You are still limited to the standard annual allowance. Over time, under-utilising your annual allowance can significantly reduce the total amount you’re able to shelter from tax, as well as causing you to lose out on the ability to compound your interest.

For example, if you consistently underuse your ISA allowance by £10,000 per year, over 10 years, that’s £100,000 that could have been growing in a tax-efficient wrapper. Depending on your investment returns, the long-term difference could be substantial, particularly if you’re investing in higher-yielding opportunities such as property-backed lending.

How to maximise your ISA allowance

The best way to make the most of your annual ISA allowance is to start allocating money as early as possible in the year. £20,000 is the equivalent of approximately £1,666 per month. If you can afford to set this aside, a direct debit or standing order can make the allocation process much easier. Just take some time at the start of the year to decide which ISA accounts to use, set up an automated monthly payment system, and you won’t have to revisit your strategy until April 2027.

Choosing the right ISA

Your annual ISA allowance can be spread across a range of ISA accounts, allowing you to diversify across stocks and shares, cash, and peer-to-peer loans. How you choose to invest will depend on your individual risk profile. If you are risk averse, you may prefer to allocate most of your funds into a Cash ISA, where yields tend to be lower but more consistent. With stocks and shares, you can choose to either hand-pick your own investments or place your money into a tracker fund. However, geopolitical risk and macroeconomic volatility tends to hit the equity markets first, so depending on the makeup of your portfolio, you could incur losses in the event of a market shock.

Innovative Finance ISAs – or IFISAs – occupy something of a middle ground. Returns are relatively consistent, and typically higher than Cash ISAs. The IFISA bracket covers off peer-to-peer loans, crowdfunding investments, open ended property funds and long-term asset funds. For P2P IFISAs such as the Loanpad IFISA, investors earn money through loan repayments from the platform’s borrowers. The key risk here is that the borrower is unable to make one or more of these repayments, and ultimately could fall into difficulty, placing investor capital at risk. However, a good IFISA manager will conduct strict due diligence on every new borrower, ensuring that only the highest quality borrowers are able to access the platform’s lenders. Loanpad also takes collateral in the form of property on every loan that it approves, ensuring that there is a way for investors to recoup their capital should the borrower default. Furthermore, Loanpad invests alongside its investors, sharing the risk.

Learn more about the Loanpad IFISA here.