This year marked the 20th anniversary of the ISA. The Individual Savings Account was launched in 1999. If you’re one of the estimated 42% of adults who now hold one, we say Happy ISA to you!
From day one the ISA offered a simple way to save in a tax-efficient way. It was launched by Gordon Brown when he was Chancellor under Tony Blair’s Labour government.
It replaced products such as the personal equity plan (PEP) and also the tax-exempt special savings account (TESSA).
Some types offered greater security on the initial sum invested but paid relatively low rates of interest. Others were exposed to stock market fluctuations and offered investors an attractive way to grow their money.
However, always be aware that the value of investments or income from them can fall as well as rise.
How has the ISA changed?
Twenty years ago the annual allowance was just £7,000. In 2019, that has risen to £20,000. This means that savers can contribute up to this amount in one or more ISAs.
However, at the start things were not that straightforward.
Of the £7,000 original allowance, only £3,000 could be held in a Cash ISA. These are generally flexible products that allow easy access.
When they launched at least £4,000 of the total allowance had to be invested in stocks and shares ISAs. For many, this was risky.
This rule was eventually changed in 2014 when people were given complete flexibility. Ultimately, they could then choose how the allowance was achieved with a mix of ISA products.
Slowly but surely, the total allowance has grown over the years.
ISAs, AIM and inheritance tax
How and where investments can be held has also changed. From the 2013-14 tax year, shares could be held in AIM-listed companies (formerly the Alternative Investment Market).
ISAs with AIM-listed shares are relatively low in number, but there can be advantages. For starters, you are not taxed on dividends from AIM shares held in an ISA. Also, you do not have to pay Capital Gains Tax (CGT) on the profits you make.
Just like birthdays, the ISA has changed as it has grown older.
In 2015, an amendment to the ISA rules allowed a spouse to inherit the ISA tax benefits accumulated by their partners.
This means when a husband or wife dies, the surviving partner gets a one-off additional ISA allowance equivalent to their partner’s ISA value at the time of death. They are allowed to reinvest the same amount in their own name and keep the tax benefits.
For a detailed overview of all ISA intricacies, you should always seek professional independent advice.
As things stand, there are currently six types. This includes cash ISAs, stocks and shares ISAs, innovative finance ISAs, junior ISAs, lifetime ISAs, and the Help to Buy ISA.
One thing is certain; this type of investment has changed and evolved over its 20-year life span.
Independent advice on ISAs
Personal circumstances differ, so getting good independent advice about the various types of savings and investments is prudent.
Understanding every aspect of how ISAs can be used is not easy. Rules often change and how much you can save and invest is altered most financial years.
Do you need to understand more about making the best use of your allowance?
We’re a team of independent financial advisers that offer wise words about money, without the jargon.
Just call 0808 1234 321 or email email@example.com and we’ll begin the conversation.