Individual Savings Account (ISA)

ISAs were introduced in the United Kingdom in 1999 to encourage saving. Each adult can pay in up to an annual allowance set by the government, and everything earned inside the account is free of income tax and capital gains tax. Withdrawals are also tax-free.

There are several types. Cash ISAs work like savings accounts. Stocks and shares ISAs hold investments such as funds and shares. Lifetime ISAs help with buying a first home or saving for later life. Innovative finance ISAs hold peer-to-peer loans. Junior ISAs are for children.

For example, someone who invests regularly in a stocks and shares ISA over many years can later withdraw the whole value, including all the growth, without paying any tax.

Unused allowance cannot usually be carried forward to future years, so many savers try to use it each tax year. Contributions are not tax-deductible, which makes ISAs similar to Roth accounts in the United States and tax-free savings accounts in Canada. The government periodically reviews ISA rules and allowances, so current limits should be checked.