ISAs (Individual Savings Accounts)

ISAs (Individual Savings Accounts) replaced both PEPs (Personal Equity Plans) and TESSAs (Tax Exempt Special Savings Account) from April 1999 and have been an extremely successful tax efficient savings vehicle. 

The Government’s stated aim in introducing these products was to encourage people, through tax reliefs, to raise the level of their long term savings.


If you are starting out to invest for the future then making as much use as you can of the annual ISA allowance ( £20,000 for 2022/23) should be a priority.

What is an ISA?

ISAs are tax exempt cash and/or stocks and shares accounts under which income received in the form of interest and dividends is free of tax and on which there is exemption from capital gains tax on any capital growth.

According to HMRC around 13 million Adult ISA accounts were subscribed to in 2019 to 2020, up from 11.2 million subscribed to in 2018 to 2019. The number subscribing to cash ISAs increased by 1.2 million from 2018 to 2019. The number subscribing to stocks and shares ISAs increased by 300,000. The share of accounts subscribed to in cash has remained broadly consistent at 75% of accounts, compared to 76% in 2018 to 2019.


  • Income (i.e. interest and/or dividends) and any capital growth achieved by an ISA is not subject to income tax or capital gains tax.
  • There is no requirement to declare income or gains from an ISA.
  • An ISA offers an overall subscription limit of £20,000 for the tax year 2022/23, so that a married couple or civil partners could jointly save or invest £40,000 each year into ISA accounts.
  • With a wide choice of investments combined with its tax efficiency, an ISA is typically the first port of call for an investor, particularly for higher-rate and additional-rate taxpayers and those restricted as to the amount of tax-relievable pension contributions they can make.
  • ISA holders can subscribe the full amount to a cash or a stocks and shares ISA or split the ISA allowance between the two.  No more than one cash ISA and one stocks and shares ISA can be opened in each tax year, however, once opened, the ISAs can be transferred between providers.
  • Withdrawals from ISAs have now become more flexible and ISA holders are able to withdraw and replace money in the same tax year without it counting towards their annual subscription limit.

Types of ISA Accounts

  • Cash ISAs – are effectively tax-free deposit accounts and these are provided by banks, building societies and National Savings & Investments.  As with all cash deposits, cash ISAs suffer from the effects of inflation.  In addition, they may not provide a tax advantage if an individual’s total interest income is below the Personal Savings Allowance (£1,000 for basic-rate tax payers and £500 for higher-rate tax payers).  They can be a useful account for holding a person’s emergency fund.
  • Stocks and Shares ISAs – are also tax-free.  The tax on interest on deposits and bonds is automatically reclaimed by the ISA manager for the ISA holder’s benefit and dividends are paid gross.  Stocks and shares ISAs also protect investments against capital gains tax. Their name can be misleading as they can also invest in other assets such as bonds (i.e. fixed interest funds) and property (i.e. commercial property).
  • Junior ISAs – are long-term, tax-free savings accounts for children under 18 and living in the UK.  They can be either cash or stocks and shares ISAs and the limit for 2022/23 is £9,000.  The money is locked away until the child is 18 and then they are free to do what they like with it.  Those with the former Child Trust Funds can convert these into junior ISAs as rates are likely to be better.  A child cannot have a junior ISA as well as a child trust fund. 
  • Lifetime ISAs are longer term tax-free accounts for those aged 18 to 39.  Up to £4,000 each year can be saved or invested in a lifetime ISA (cash or stocks and shares) potentially payable until the investor is age 50, although this limit, if used, will form part of the overall annual ISA limit. The product benefits from a 25% government bonus on the amount saved, so a maximum of £1,000 each year.  In the first year only, the bonus is paid at the end of the tax year, after which it is paid monthly. Investors can use their lifetime ISAs to buy their first home (subject to a maximum price of £450,000).  It can also be used to save for retirement, with tax-free access from age 60. Those with a previous Help to Buy ISA can transfer the funds to a Lifetime ISA. Money can be accessed at any time, although this incurs a 25% charge unless the saver is in serious ill-health.  This more than cancels out the government bonus paid on that amount.

How to start investing in a Stocks & Shares ISA

If you are not using the services of a financial adviser one of the best places to look at before you choose your Stocks & Shares ISA is the Boring Money ISA Best Buy List

I have also set up a page specifically for those who want to know how to start investing in a Stocks & Shares ISA, perhaps initially by investing a relatively small monthly amount.

ISAs and Inheritance Tax

ISAs do form part of the ISA holder’s estate on their death.  Whilst they are tax-free during the ISA holder’s lifetime, therefore, they could be liable for a 40% tax charge following their death.

Where the ISA holder leaves a surviving spouse they will benefit from an additional ISA allowance up to the value of the deceased spouse’s or civil partner’s ISA holding at the time of death.  This additional allowance, or Additional Permitted Subscription (APS), does not count against the nominal annual ISA subscription limit.

If their attitude to risk allows, an ISA holder who can no longer rely on giving away assets and living for a further seven years, could switch their ISA holdings into an AIM (Alternative Investment Market) ISA which would move the funds out of their estate once held for just two years and still held at the date of death.



This information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances.

Information given relating to tax legislation is based on our understanding of legislation and practice currently in force. Whilst we believe our interpretation of current law and practice to be correct in these areas, we cannot be responsible for the effects of any future legislation or any change in interpretation or treatment. In particular you are warned that levels of tax and tax reliefs are subject to alteration and, in any case, the value of such reliefs and benefits may depend on an individual’s circumstances.

If you are in any doubt as to whether any course of action is suitable for you, then you should discuss the matter with a suitably qualified independent financial adviser or other specialist.