Why investing in an ISA now could be a game changer later
Investing in an Individual Savings Account (ISA) offers many benefits, even if you don’t currently pay capital gains tax (CGT) or income tax. It’s easy to overlook an ISA when you’re not worried about taxes. But making use of this tax-efficient wrapper now, could set you up for advantages later in life.

Last Updated: 1 January 2003
An ISA is a type of savings or investment account that is generally only available to UK residents. It allows you to save and invest money, without paying UK tax on income or capital gains.
While this article can help you make the most of your money, it isn’t personal advice. If you’re not sure what’s right for your circumstances, ask for financial advice.
ISA and tax rules can change and any benefits depend on personal circumstances.
Why invest in an ISA if you don’t pay capital gains tax?
Even if you're not currently paying CGT – perhaps because your capital gains fall below the tax-free threshold – there are still reasons to consider investing in an ISA.
1. Tax-free growth
When you invest in an ISA, all the growth in your investments is completely free of UK CGT, both now and in the future. While you might not be paying CGT today, there could come a time when you have more wealth and are subject to it. By investing in an ISA now, you avoid paying tax on your gains, even if your tax situation changes later on.
2. Flexibility for future tax planning
If you decide to sell assets, in the future, CGT could become relevant. The CGT allowance is currently set at £3,000 for the 2024/2025 tax year. But reductions are possible in the future. By using an ISA, any gains you make from your investments will be shielded from CGT entirely. This gives you flexibility as your financial situation evolves.
3. Compound growth
Investing early in an ISA allows your money to benefit from compound growth. Even if you’re not paying tax now. The tax-free growth over time means you could have a larger amount of money by the time you do face higher taxes.
If you were to save £100 and get 5% interest a year – paid annually – you’d make £5 of interest and have £105 at the end of the year. If you were asked what you’d make after two years, you might guess £10 and after three years you might assume £15. Leaving you with £115 overall.
However, that’s not quite how it works. In year two, you’re not getting interest on £100, you’re making it on £105, so you’d get £5.25 in interest, and you’d have £110.25. Then in year three, you’d make 5% of £110.25, which is £5.51, so you’d have £115.76.
On a small sum of money over a short period of time, it doesn’t feel like a massive difference. But it can add up pretty spectacularly over the years.
If you were to save or invest £20,000 in a Stocks and Shares ISA, with 5% annual growth (not including charges or taking into account inflation), after 20 years, if you excluded the impact of compounding, you might expect to get 5% of £20,000, 20 times, leaving you with £40,000. In fact, because you’re getting growth on your growth, you’d end up with £53,066.
The power of compound growth means that even modest investments early in life can grow significantly over time. An ISA gives you a way to build wealth without worrying about UK tax taking a bite out of your returns.
Remember to note these are hypothetical growth figures and what you will actually get will depend on the underlying investments and how they perform, account charges, inflation and your personal and tax situations. Please note that investments fall as well as rise in value, so you could get back less than you invest. Past performance isn’t a guide to future returns.
How an ISA could benefit you later
Let’s say you’re 25 years old, and you’re earning £20,000 a year. Your investments don’t produce enough capital gains to push you into the territory where you’d pay CGT. For the next few years, you take advantage of your ISA’s tax-free benefits but don’t worry much about CGT, since you’re not paying it.
Fast forward to when you’re 35. For this example, you're now earning £25,000 a year and you've saved £50,000 in your ISA. The market has been good to you, and your investments have grown to £60,000.
If this growth had been in a regular investment account and you sold the investments, you'd owe CGT on the £10,000 profit. With the CGT allowance at £3,000, this means £7,000 of your gains would be taxable. As a basic-rate taxpayer, with a CGT rate of 18%, you'd face a tax bill of £1,260.
However, because you held the investments within an ISA, all that growth is completely free of CGT. You would have the full £60,000 to use however you choose.
By investing in an ISA, you’re making a smart move to future-proof your finances. Tax rules can change. Your income and assets will likely grow. But by having your investments in an ISA, you’ll ensure that the money you make is yours to keep.
Investing in an ISA is a wise decision at any stage of life. The tax-efficient nature of an ISA allows your investments to grow without tax interference, both now and in the future. Free from the worry of CGT.
The above calculation is not personal advice and should not be relied on for settling a tax bill. Calculations are based on tax rules which apply as at 17 March 2025 and based on rates and allowances for individual investors in the 2024/25 tax year. It assumes no other taxable gains are made, no allowable losses are carried forward from previous years and does not consider reliefs such as Business Asset Disposal Relief. It does not cover capital gains from property.
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