In 1999 Gordon Brown, Chancellor of the Exchequer introduced the Individual Savings Account, known as the ISA, as a replacement to the Personal Equity Plan (PEP) and Tax Exempt Special Savings Scheme (TESSA). Last tax year around £69bn was invested in adult ISAs, an increase of £7.8bn from the previous year.
The main purpose of an ISA is that funds saved are tax free, that is, the interest earned is exempt from income and capital gains tax and no tax is payable on monies withdrawn. Additionally the interest does not count towards your Personal Savings Allowance.
There are two main types of ISAs*:
- Cash – these work the same way as a normal savings account. You will get back what you put in, plus the tax free interest
- Stocks & Shares – this is an investment account where your funds could go up or down in value depending on the performance of the chosen qualifying investments
Last tax year 72% of all ISA subscriptions were held as Cash ISAs [2016/17: 77%].
There is a limit to how much you can pay into an ISA each tax year, which runs from 6 April to 5 April. When first introduced the Cash ISA limit was set at £3,000 and held for 9 years. The most significant increase to date came in 2014/15 when the limit was set at £15,000, an increase of £9,240 from the previous year (2013/14: £5,760). The limit for 2019/20 has been set by the government at £20,000, for the third consecutive year. Last tax year the average ISA subscription was £6,409, a 15% increase on the previous year.
If you already hold Cash ISA funds you are able to move these to a new provider, using a system called “transfer-in”. This keeps your funds within the ISA wrapper, as withdrawing then re-investing would mean the monies lose their tax free status. Your new provider will need to do this transfer for you.
It's also worth knowing that if you invest in a Cash ISA you cannot invest in another Cash ISA with a different provider in the same tax year – you can, however, invest in a Stocks & Shares ISA, LISA or Innovative ISA minus any investment already made in the Cash ISA. Accounts can also only be held in a sole name, so joint accounts are not permitted.
Click here to view our range of Cash ISAs.
*There is an additional Junior ISA for children under the age of 18. Click here for information on the Junior ISA.