Individual Savings Accounts (ISAs) were introduced in 1999 and replaced PEPs and TESSAs. They are available to all UK residents over 18 years of age, 16 years of age for the Cash ISAs. They benefit all taxpayers, as any income or capital gains received from investments held within an ISA do not have to be declared to the tax man.
ISAs can invest in cash or longer term investments like stocks and shares (including unit trusts, investment trusts, Open Ended Investment Companies, some fixed interest securities, or any share quoted on a stock exchange recognised by the Inland Revenue.)
In April 2008, the old Mini and Maxi ISA's disappeared and investors now have a choice between a Cash ISA and Stocks and Shares ISA. At the same time, PEPs became Stocks and Shares ISAs and maturing TESSAs became Cash ISA’s.
- The annual investment allowance for 2012/13 is £11,280. Up to £5,640 of that allowance can be saved in cash with one provider. The rest can be invested in stocks and shares with either the same or a different provider.
- You can invest in two separate ISAs each tax year – a cash ISA and a stocks and shares ISA.
- You can transfer money saved in a cash ISA to a stocks and shares ISA – but you can't transfer money the other way.
Cash ISAs - Cash ISAs are widely available with different interest rates. It is a good idea to shop around for the best Cash ISA rates. It is important however to understand the conditions attached to those rates, for instance access may be restricted in order to achieve that particular rate. The 2012/13 limit for a cash ISA is £5,340.
Stocks & Shares ISA- Your entire ISA allowance can be in stocks and shares. However if you hold a Cash ISA which you have taken out in the same tax year, you will be restricted to the difference between the overall ISA limit and what you have deposited in the Cash ISA. The Stocks & Shares ISA is one account and managed by one provider.