# Individual savings account Canonical: https://web4.xpay.bi/en/wiki/wp-en-69268/ Language: en Published: 2026-10-25T20:23:06.365Z Updated: 2026-10-25T20:23:06.365Z An individual savings account (ISA or Isa; ) is a class of retail investment arrangement available to residents of the United Kingdom. Introduced in 1999 as an Individual Special Savings Account (ISSA), the accounts are exempt from income tax and capital gains tax on the investment returns, and no tax is payable on money withdrawn from the scheme. ## Key facts ## Overview An individual savings account (ISA or Isa; ) is a class of retail investment arrangement available to residents of the United Kingdom. Introduced in 1999 as an Individual Special Savings Account (ISSA), the accounts are exempt from income tax and capital gains tax on the investment returns, and no tax is payable on money withdrawn from the scheme. 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range of investments can be held within the arrangement, and there is no restriction on when or how much money can be withdrawn. Since 2017, there have been four types of account: cash ISA, stocks & shares ISA, innovative finance ISA (IFISA) and lifetime ISA (LISA). Each taxpayer has an annual investment limit (£20,000 since 2020–21) which can be split among the four types as desired. Additionally, children under 18 may hold a junior ISA, with a different annual limit. From April 2027, the annual cash ISA limit will be reduced to £12,000 for investors under the age of 65. Until the lifetime ISA was introduced in 2017, ISAs were not a specific retirement investment, but the accounts can be useful tools for retirement planning alongside pensions. ## Origins 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 predate ISAs include many offered by National Savings and Investments, 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, introduced in 2011, replaced 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 four broad types of adult ISA: cash, stocks and shares, innovative finance (including peer-to-peer lending) and lifetime. ## 1999 Transition from older types of ISA PEPs became stocks and shares ISAs, with an exemption that allowed them to continue to hold investments that could not be held in a stocks and shares ISA, provided that the investment met the pre-2001 PEP rules. For some time there were Mini ISAs, Maxi ISAs and TESSA-only ISAs. A Mini ISA could hold cash OR stocks, potentially many if operated by a fund house or platform, while a Maxi ISA could hold cash AND stocks. 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. Alternatively, a person could invest in two 'mini' ISAs, one for each component. The two mini ISAs could be with two different providers if the investor wished. The TESSA-only ISA was a type of cash ISA funded from a TESSA, another predecessor of the ISA. New TESSAs could not be created after 5 April 1999, so the required five-year term of all TESSAs ended by 5 April 2004. 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. ## CAT standards 1999-2005 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. The standard does not guarantee the investment performance or that investors would buy or be sold the right type of investment. Many equity funds also meet the CAT standards, but the restriction on costs generally means that these funds are index funds, which require little management and simply follow a given index, such as the FTSE 100 Index. CAT standards were discontinued by the Treasury on 6 April 2005 following the introduction of the stakeholder product suite, although existing CAT standard ISAs continued on the same terms and conditions. ## 2007/8/9 limit changes In the March 2007 Budget the limits for the 2008/9 tax year were increased. From tax year 2008/2009 the distinction between a Mini and Maxi ISA was abolished. An insurance component was available in both Maxi and Mini ISAs until the 2005/06 tax year. Collective investment funds that once qualified for this component were reclassified as qualifying for either the Cash or Stocks & Shares component. ## Past subscription limits 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, rounded to the nearest £120, to ease the arithmetic for those using monthly payment schemes. From 2013 to 2014 the inflation index used was changed from RPI to CPI. The Chancellor of the Exchequer George Osborne announced in the March 2014 Budget that the adult ISA limit would be increased to £15,000 from 1 July 2014, and the Junior ISA limit to £4,000. From that date savers were allowed to invest the full amount as cash or stocks and shares, or a mix of both. Savers are also able to switch stocks and shares ISAs to cash ISAs. ## Restrictions removed from July 2014 Many restrictions were significantly relaxed from 1 July 2014 and the branding "New ISA" was introduced for this batch of changes: There was a ban on transferring from S&S ISA to cash ISA. Cash to S&S was allowed from 2008/2009. A JISA could always go in both directions. Interest on cash in a S&S ISA is no longer subject to a 20% charge. All cash in a S&S ISA is subject to the FCA client money rules and cash ISA providers can opt in if they wish. Cash can now be held in a S&S ISA even when not intended for investment. There was no specific time limit on how long cash could be held under the old rules, just whether the ISA manager believed the money was being held for future investment. The S&S ISA had a five years remaining at time of purchase restriction on public debt securities such as government, corporate bonds, debentures and Eurobonds. Conditional redemption, such as that based on possible future market performance, was acceptable, as was the borrowing company or government redeeming the security early or exercising of options if there are defaults, insolvency risks or covenant breaches. The S&S ISA had a requirement for a credible possibility of losing at least 5% of the investment, called the 5% test. Investments that failed the test had to be held in a cash ISA instead: A cash ISA can still hold qualifying investments that failed the 5% test for holding within a stocks and shares ISA before 1 July 2014 when the test was removed but this facility was rarely, if ever, made available by a cash ISA provider. Such investments would not be deposits and would not have the deposit FSCS protection, they may have the £50,000 investment protection instead, the provider must make the situation clear. ## Cash ISA 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). 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. From 6 April 2027, the annual cash ISA subscription limit will be reduced to £12,000 for investors under the age of 65, within the unchanged overall ISA allowance of £20,000. This was announced at the UK Autumn Budget on 26 November 2025. Investors aged 65 and over will keep a £20,000 cash ISA limit, and the limits for stocks and shares and Innovative Finance ISAs will not change. The UK government stated that the aim is to encourage greater retail investment. To prevent the lower limit being circumvented, transfers from stocks and shares or Innovative Finance ISAs into cash ISAs will not be permitted for under-65s. A flat 22% charge will apply to interest paid on cash held within non-cash ISAs, and a non-cash ISA invested wholly in cash-like assets, initially defined as money market funds only, will become a non-qualifying investment. ## Help to buy ISA A help to buy ISA, introduced in 2015, is a form of cash ISA that receives a government bonus if the money is used in paying the deposit on a first home purchase. The usual rule that any number of accounts can be held with the same ISA manager applies, and many providers offered the ability to hold both HTB and other cash ISA accounts with current year money in them. However, only one HTB ISA in total can be held, so if one wishes to put current year money into the HTB ISA, any other cash ISA current year money will also have to be paid into a cash ISA with the same provider. The Lifetime ISA, announced in March 2016, replaces the HTB ISA. HTB accounts could be opened until 30 November 2019 and contributions can continue until 30 November 2029. An account holder can also have a Lifetime ISA, although the government bonus from only one of the accounts per person can be used for a purchase. Transfers from HTB to Lifetime ISA were allowed from the 2017-18 tax year, with transitional arrangements for that year only. Help to buy ISAs have been criticised: Some accounts were promoted with the implication that the bonus could be put towards the deposit on a house purchase, but the bonus is only available on completion of the sale, and thus normally has the effect of reducing the size of the buyer's mortgage. It was reported that the scheme – which by mid-2017 had cost taxpayers some £10 billion – had done little to increase the supply of new-build homes, and instead housebuilders had increased prices and thus their profits. ## Stocks and shares ISA Investors' money is invested in 'qualifying investments', which are: cash UCITS authorised funds like unit trusts and open-ended investment companies investment trusts that satisfy various conditions company shares publicly listed on one of the many recognised stock exchanges. Merely being traded is insufficient, it must be a full listing, and this excludes PLUS-quoted and PLUS-traded market segments, but PLUS itself is acceptable; shares in unquoted companies; warrants; futures and options. Since 5 August 2013, AIM shares are allowed in ISAs. public debt securities such as government, corporate bonds, debentures and Eurobonds from 1 July 2014, some core capital deferred shares issued by building societies, some types of insurance policy and other investments that were previously deemed too low in risk. It is mandatory that money held in a stocks and shares ISA be made available on request within 30 days but it is permitted to have a loss-of-interest penalty for this. ## Innovative finance ISA Innovative finance ISAs (IF ISAs or IFISAs) became available from 6 April 2016. They are similar to cash and S&S ISAs but designed to be used for peer-to-peer lending investments, which were not previously eligible to be held in an ISA. Only platforms with full FCA authorisation (and ISA manager status) are eligible to offer IF ISAs; at launch this barred all major existing platforms because they were awaiting authorisation, leaving just eight at the time relatively minor platforms available and 86 awaiting approval. Equity-based crowdfunding, although similar to peer-to-peer lending, is not included in the eligible products for this type of ISA. 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. They can be included whether offered via a P2P platform or not. The same rules with respect to subscription limits and transfers are applicable to the IF ISA as other adult ISAs, including the restrictions of current year money going to only one ISA manager, and an unrestricted number of managers for past year money. ## Lifetime ISA 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. Only those aged 18 to 40 can open an account, and at the end of the tax year (or when used for purchase) a 25% bonus on contributions of up to £4,000 a year will be paid. The £4,000 is part of the overall ISA annual allowance, not in addition to it. On reaching age 50, no more money can be added to the account and eligibility for the 25% bonus ceases, but the account will still earn interest or investment returns. The accounts have the same inheritance tax treatment as other ISAs. Permitted investments are as for cash or S&S ISAs, and as for them any number of accounts is allowed, but only one account can hold current year money. After the account has been open for at least 12 months, the money can be used for a first home purchased with a mortgage and priced up to £450,000; the money is paid to the conveyancer and can be returned to the ISA if the sale does not complete. 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. If you and a partner buy a house together, you can both save into a LISA and both put your LISA towards the home. Money can also be withdrawn after reaching age 60. 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. Any other withdrawal, including transfers to another type of ISA, incurs a 25% charge. Although the bonus and penalty are both 25%, those who withdraw funds for purposes not listed above will suffer a loss, for example: £1,000 paid in + government bonus at 25% = £1,250 - penalty charge at 25% = £937.50 = net loss of £62.50 Penalty charges were temporarily reduced from 25% to 20% on withdrawals between 6 March 2020 and 5 April 2021 during the recession arising from the COVID-19 pandemic. This reduction ensured that savers making withdrawals received the full amount they had deposited. £1.5 billion was held in LISA savings in 2022, and the 2022 cost of living crisis fuelled in part by rising inflation led to calls to introduce a temporary penalty-free period to allow access to these savings. ## Sources - Individual savings account · Wikipedia: https://en.wikipedia.org/?curid=69268 Source: Wikipedia contributors — https://en.wikipedia.org/?curid=69268&oldid=1381909973 Licence: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation notice: Reformatted for XPay; the source may be abridged, restructured or translated. Consult the cited revision for the original.