ISA definition

What does ISA mean?

An Individual Savings Account (ISA) is a tax-favoured savings account introduced on 6 April 1999 which replaced Personal Equity Plans (PEPs) and Tax-exempt special savings accounts (TESSAs). ISAs are not an investment in their own right; they are a tax-free ‘wrapper’ in which an individual can shelter investments.

People over the age of 18 living in the UK can invest a maximum of £11,520 per tax year (2013/14). Until 5 April 2004 ISAs benefited from a 10% tax credit on UK equities. Stock and share investments which can be held in an ISA include unit trusts, open ended investment companies (OEICs), investment trusts, ordinary shares, preference shares and fixed interest corporate bonds. PEPs in existence at 6 April 1999 may continue to be held outside an ISA with the same tax advantages. Income from ISA investments is tax free and does not need to be reported on tax returns. ISAs are also exempt from CGT. ISAs are a sensible alternative to pension provision for the lower-paid, because they offer the same tax-neutrality as pensions – but with the advantage they can be spent at any time.

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