Saving
Individual Saving Account
ISAs part 2
ISAs part 3

Individual Savings Account (ISA)

An ISA is a tax privileged way of saving or investing your money in the UK. The ISA was introduced in 1999 to replace the previous methods of saving and investing which were PEPs (Personal Equity Plans) or TESSAs (Tax-Exempt Special Savings Accounts). These earlier products were often criticized as being targeted and beneficial only to the middle classes, whereas the ISA was introduced with the idea that it would appeal to all people.

History of the ISA

Before March 2007 there were two varieties of ISA. There were Mini ISAs and Maxi ISAs. However, during the budget of March 2007 these were eradicated as the limits for the 2008/2009 tax year were increased.

Preceding this, there were also TESSA-only ISAs or TOISAs. These were introduced to enable any original capital (not including any interest) invested in a TESSA to be reinvested tax-free.

Components of an ISA

ISAs can include two components:

1. Firstly, a cash component. Like regular savings accounts this is a cash deposit except with an ISA it is tax free. Incidentally, a TOISA must consist completely of a cash deposit.

2. Secondly, a stocks and shares component. Here the money can be invested in any amalgamation of “qualifying investments”. Such as stock market equity investments, cash awaiting investment, or public debt securities. Therefore, the risk of the ISA can vary from low to high depending on the types of investments included in the ISA.

3. Lastly, the insurance component. This was only applicable up to the 2005/2006 tax year when maxi and mini ISAs were still available.

Can I transfer my ISA?

This can be done but not between differing types of ISAs. It can also only be done between managers. The saver cannot transfer the money as this will then be deemed as a withdrawal and therefore the saver will no longer be able to put it in an ISA if their subscription period is up.

ISAs part 2

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