Individual Savings Accounts

ISAs (Individual Savings Accounts) were introduced in 1999 and were preceded by Personal Equity Plans (PEPs) and there are now two types:

  • Cash ISAs
  • Stocks & Shares ISAs

The biggest advantage of ISAs is that all monies within them grow free of income tax and capital gains tax so they are known as tax efficient savings schemes; the downside is there are maximums you can invest.

Currently you are allowed to invest a maximum of £10,680 per tax year into ISAs, the tax year running from 6 April one year to 5 April the following year.

Present rules state that you can invest the full £10,680 allowance into a Stocks & Shares ISA or a mixture between that and a Cash ISA, however you can't invest more than £5,340 into a Cash ISA in any one tax year and no more than £10,680 in total between the two.

With a normal deposit based savings account, a basic rate tax payer would pay tax at source at 20% on the gross rate of interest being offered by the particular Bank / Building Society and a higher rate tax payer would have an additional 20% tax to pay. A non-taxpayer can fill in an R85 form to ensure that the interest is paid gross.

Note, it is permissible to save into a Cash ISA only from aged 16, however you must be aged at least 18 before you can invest in a Stocks & Shares ISA.

Last updated: 22/04/2010 14:28:34