An individual savings account (ISA; /ˈaɪsə/) is a class of retail investment arrangement available to residents of the United Kingdom.
Cash and a broad range of investments can be held within the arrangement, and there is no restriction on when or how much money can be withdrawn.
[3][4] With a few exceptions, such as from an employee share ownership plan, all investor contributions must be in cash, not kind.
There are four broad types of adult ISA: cash, stocks and shares, innovative finance (including peer-to-peer lending) and lifetime.
Any UK resident individual aged 18 or over could invest in one 'maxi' ISA per year, with both components provided by a single financial institution.
TOISAs were created to allow the original capital (excluding interest) invested in a TESSA (up to £9,000) to be reinvested in a tax-free form.
In April 1999, the Government introduced a voluntary CAT standard for ISAs (standing for "Charges, Access, and Terms") to make them easier for inexperienced customers to understand and with the intention that lower costs would attract more investors.
In the March 2010 Budget the then Chancellor of the Exchequer Alistair Darling announced that in future years the limits would rise annually with inflation,[12] rounded to the nearest £120, to ease the arithmetic for those using monthly payment schemes.
From that date savers were allowed to invest the full amount as cash or stocks and shares, or a mix of both.
[13] Many restrictions were significantly relaxed from 1 July 2014[14] and the branding[15] "New ISA" was introduced for this batch of changes: An account which enjoys tax-free status, usually deposit accounts with £85,000 Financial Services Compensation Scheme (FSCS) protection (but client money with £50,000 protection or unprotected money is also permitted; the providers are required to make the protection clear).
[29] Equity-based crowdfunding, although similar to peer-to-peer lending, is not included in the eligible products for this type of ISA.
[30] From 1 November 2016 many transferable debentures including debt securities and bonds became eligible for inclusion provided they are issued by a company or charity.
[33] In the 2016 Budget it was announced that a lifetime ISA (LISA) would be introduced from 6 April 2017 as a more flexible way to save for both home purchase and retirement.
There are restrictions in place to avoid abuse of the scheme, for instance those who purchase a home with a LISA are barred from renting the property out.
A person who is diagnosed with a medical condition giving a life expectancy of under one year can withdraw the full amount including bonus without penalty at any age, using the definition in the similar pension law.
[34] Although the bonus and penalty are both 25%, those who withdraw funds for purposes not listed above will suffer a loss, for example: However, the government have created a precedent where this penalty charge may be reduced during periods of poor economic outlook and the LISA can effectively be used as a rainy day fund.
Penalty charges were reduced from 25% to 20% on withdrawals between 6 March 2020 and 5 April 2021 during the recession arising from the COVID-19 pandemic.
[37] This reduction ensured that savers making withdrawals received the full amount they had deposited.
[38][39] Junior ISAs were introduced on 1 November 2011 with an initial subscription limit of £3,600, which was increased to £9,000 by the time of the 2020-21 tax year.
Money cannot be withdrawn until age 18 unless a terminal illness claim is agreed or following closure of the account after the death of the child.
Up to the full JISA limit can be used for any combination of cash and stocks and shares ISA subscriptions.
A British ISA was announced by the government in its Spring Budget 2024 with an annual allowance of £5,000 to be used only towards investment in UK companies.
This is a considerable paperwork reduction for active traders or those who may otherwise be required to report their trades because they have total sales value exceeding four times the annual CGT allowance, which outside a tax wrapper would require that all trades be reported even if there is no capital gains tax to pay.
Cash or investments held in ISAs are ordinarily subject to Inheritance Tax when the account holder dies, if their estate is valued above the IHT nil-rate band.
These are merely marketing terms used by stocks and shares ISA providers to distinguish the type of business that they tend to seek.
For example, Hargreaves Lansdown quoted a 0.8% profit margin on cash held in its Vantage platform in spring 2014.