What is an ISA Account?

ISA's are a type of saving account in the UK. The terms standards for Individual Savings Accounts hence the the shortened commonly used term ISA. ISA's where introduced in Gordon Brown's, when he was Chancellor of the Exchequer before he became prime minster. In his first budget as chancellor in 1997 the ISA was introduced to replace the TESSA and PEP accounts that had been established by the previous Conservative governments. The ISA’s came to life as products in 1999. The aim was to encourage individual savings from those on lower incomes and were coupled with the child trust fund in an attempt to help parents save for their children’s futures.

Initial in an ISA savings account you could save up to £7,200 a year and not pay UK tax on the income that you receive from the savings fund. An ISA can be a combination of cash, stocks and shares and insurance policies. A UK based individual can invest in two ISA in the same tax year if they are split between one containing cash and another containing stocks and shares. The tax year in the UK runs 6th April one year to 5th April the following year.

The first cash ISA had an upper limit of £3,600. You can still only have a single cash ISA a year with one provider.

It was thought that the life span of ISA’s might be limited when the coalition government came to power in May 2010. Although they have replaced the Child Trust Fund with the Junior ISA they have left the basis of the ISA untouched as they have appeared to be a very popular way of saving.

They have however massively increased the tax free limits on ISA’s. The in the tax year 2011-2012 the cash ISA limit have increased to £5340. The upper limit for a Stocks & Shares ISA is £10680. You can invest up to £10680 into a stocks a shares ISA if you don't take the cash ISA allowance. The future increases in allowance for ISA’s will be kept in line with official RPI figures released each September. The RPI for September 2010 was 4.6% which means that for the year 2012 -13 the overall ISA limit has increased by £480. The Cash ISA allowance has increased by £240.This means the Cash ISA limit has risen to £5340 and the overall ISA allowance has increased to £10680.

The limit to the amount of cash you can invest in an ISA in any tax year is £3,600. You can only have a single cash ISA a year with one provider. The limit to the amount of stocks and shares you can invest in an ISA in a single tax year is £7,200. Once again you can only have one ISA with one provider per tax year.

You can invest in both cash and shares but the total amount of the ISA Saving Plan must not exceed the total of £7,200. The different schemes, one cash and one share can be with different investment services providers. The important point to remember is that you cannot exceed the total of £7,200 for the joint investment and not exceed £3,600 in cash.

An ISA savings plan allows you to transfer your cash ISA to another ISA manager or investment services

provider, either into another cash ISA or into a stocks and shares ISA. You can transfer your stocks and shares ISA to another ISA manager, but only into another stocks and shares ISA. You cannot transfer a stocks and shares ISA into a cash ISA. You are able to transfer some or all of the money saved in previous tax years without affecting your annual ISA investment allowance.

Tony Heywood ©