Individual Savings Account

An Individual Savings Account (ISA; /ˈaɪsə/) is a class of retail investment arrangements available to residents of the United Kingdom. It qualifies for a favourable tax status. Payments into the account are made from after-tax income. The account is exempt from income tax and capital gains tax on the investment returns, and no tax is payable on money withdrawn from the scheme either. 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range of investments can be held within the arrangement, and there is no restriction on when or how much money can be withdrawn. Funds cannot be used as security for a loan. It is not a pension product, but can be a useful tool for retirement planning.

ISAs were introduced on 6 April 1999, replacing the earlier Personal Equity Plans (PEPs; very similar to a Stocks and Shares ISA) and Tax-Exempt Special Savings Accounts (TESSAs; very similar to a Cash ISA). Other tax-advantaged savings that also predate ISAs include many offered by National Savings and Investments, which is a state-owned institution which has in the past offered a range of other tax-free accounts, in addition to its own ISAs.

Junior ISAs also replace the Child Trust Fund.

With a few exceptions, such as from an employee share ownership plan, all investor contributions must be in cash, not kind. Adult ISAs are available to UK residents aged over 16, provided that they have a National Insurance number, but individuals between 16 and 18 are only permitted to use the adult cash component or can use a Junior ISA.

There are three broad types of adult ISA, cash, stocks and shares or innovative finance (peer to peer lending).

An account which enjoys tax free status, usually deposits with £75,000 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. These are normally offered by banks and building societies but investment firms can also offer them. It is mandatory that money held in a cash ISA be made available on request within 15 days but it is permitted to have a loss of interest penalty for this and this is how term deposits are typically made available.

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