Pay the full £20,000 allowance into a Stocks and Shares ISA at the start of each year for 20 years, assuming a 7 percent average annual return. Your own contributions total £400,000, but compounding turns the pot into roughly £877,304. That means about £477,304 of investment growth, and because it is inside the ISA wrapper, every penny of it is free of income tax, dividend tax, and capital gains tax. The growth outweighs the contributions because returns in the early years earn returns of their own for two decades. Outside an ISA the same gains could attract capital gains tax at 18 or 24 percent and dividend tax, so the wrapper is doing real work over a long horizon.
How it is calculated
The projection uses the future value of an annuity-due, meaning each year's contribution is assumed to go in at the start of the year and then compound for the rest of the term. The tool multiplies your annual contribution by a growth factor built from the return rate and the number of years, which sums every year's compounded balance into one figure. Total contributions are just the annual amount times the number of years, and the difference between the final value and the contributions is the growth. The 2026/27 ISA subscription limit is £20,000 across all ISA types combined, and all growth and withdrawals are tax-free with no impact on your tax return. The model assumes a constant return every year, which real markets do not deliver, so treat the output as a smoothed long-run illustration rather than a guarantee.
Frequently asked questions
Cash vs Stocks & Shares ISA?
Cash ISAs are essentially tax-free savings accounts. Stocks & Shares ISAs let you invest in equities/funds with all gains tax-free. For long horizons (10+ years), Stocks & Shares typically wins meaningfully.
What is the ISA allowance for 2026/27?
The annual ISA subscription limit for 2026/27 remains £20,000 per person. This limit applies across all ISA types combined, so you cannot put £20,000 into a Cash ISA and another £20,000 into a Stocks and Shares ISA in the same tax year. Unused allowance cannot be carried forward to the next tax year.
Can I withdraw money from my ISA without losing the tax benefit?
With a standard ISA, withdrawals do not reclaim the allowance you originally used. Some providers offer a Flexible ISA, which does allow you to replace withdrawn funds within the same tax year without it counting as a new subscription. Check with your provider whether your account is flexible before withdrawing and redepositing.
How does compound growth work inside an ISA?
Compound growth means that investment returns in early years generate their own returns in later years. Inside an ISA, this compounding is fully sheltered from tax, so no slice is taken out each year for dividends or capital gains. Over long periods the compounding effect can make the tax-free wrapper significantly more valuable than a taxable account earning the same headline return.