Individual Savings Accounts (ISAs)
Individual Savings Accounts (ISAs) are the Government's primary vehicle for tax-advantaged adult saving outside pensions.
ISAs have helped to make saving, and the benefits of saving, more accessible for ordinary investors. They have reached a wider section of the population than Tax Exempt Special Savings Accounts (TESSAs) or Personal Equity Plans (PEPs), which they replaced. Over 17 million people - around one in three adults - now have an ISA. They have also increased take-up among both low-income groups and the young. ISA and PEP savings are supported by an estimated £2.1bn a year in tax relief.
When ISAs were introduced in 1999 they were guaranteed to run for an initial ten years to 2009 and the Government set initial annual investment limits of £7,000 with a maximum of £3,000 in cash, to encourage new saving. In Budget 2005 the Chancellor announced that these initial investment limits would be guaranteed to at least 2010 (PDF file of Chapter 5 Budget 2005).
In the Autumn of 2006, the Government concluded its internal review of the ISA, which was promised when the regime was introduced. As a result of the review, a package of reforms was announced to make the regime simpler and more flexible. Details of these reforms were published alongside the 2006 Pre-Budget Report, setting out proposals for implementation and seeking views on a range of practical issues. The package was amended at Budget 2007 in light of responses received from the financial services industry and elsewhere. Budget 2007 also announced increases in the ISA annual investment limits (PDF file of Chapter 5, Budget 2007), to come into effect in April 2008, alongside the package of reforms.
Key elements of the final package, which came into effect on 6 April 2008, are:
- ISAs are available indefinitely;
- All Personal Equity Plans (PEPs) will automatically become stocks and shares ISAs;
- Savers can transfer money saved in cash ISAs into stocks and shares ISAs;
- A new structure and limits, removing the Mini/Maxi distinction. From April 2008, every adult will have an annual ISA investment allowance of £7,200. Up to £3,600 of that allowance can be saved in cash with one provider. The remainder of the £7,200 allowance can be invested in stocks and shares with either the same or another provider.
The HM Revenue and Customs (HMRC) website has the final regulations (PDF file) for bringing these reforms into effect. For further information see HM Revenue and Customs' ISA website.
Related links
The below documents are available in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website. For alternative ways to read PDF documents and further information on website accessibility visit the HM Treasury accessibility page.
- ISA Reforms: Final Regulatory Impact Assessment - ISBN: 978-1-84532-319-6 (PDF file, 428KB) July 2007
- Explaining the new ISA regime (PDF file, 72KB) July 2007
- Pn86 ISA reforms to encourage saving 27 July 2007
- Individual Savings Accounts: proposed reforms Pre-Budget Report 2006
- Chapter 5: Building a fairer society (PDF file, 209KB) Budget 2005