This year is the 20th anniversary of the Individual Savings Account. In this article we look at how this popular account and its tax-free allowance have evolved since 1999. We also find out how much money you could have today if you’d used your full allowance each year.
Published on 16 Sep 20194 minute read
ISAs (or Individual Savings Accounts) were introduced in 1999 by Chancellor of the day Gordon Brown as a simple account for saving and investing. They replaced a number of different accounts including Personal Equity Plans (PEPs), Single Company PEPs and Tax-exempt Special Savings Accounts (TESSAs).
The two main types of ISAs are Cash ISAs, which pay you interest on your money, and Stocks & Shares ISAs. Here at Bestinvest we deal with Stocks & Shares ISAs – these are simple accounts that make it easy to invest your money.
Other types of ISA have also been introduced over the years, with varying levels of popularity and success. For example, Junior ISAs were introduced in 2011, replacing Child Trust Funds as an account for saving towards a child’s future.
They were joined by Help to Buy ISAs in 2015 and Innovative Finance ISAs in 2016, both of which have been less popular. The former is designed to help first-time buyers onto the property ladder while the latter pays you interest for lending money to businesses and individuals. Most recently, the Lifetime ISA was launched in April 2017 – it offers a 25% Government bonus towards either your first home or retirement.
The main selling point for ISAs was, and continues to be, their tax-free status. You don’t pay a penny of Income Tax or Capital Gains Tax on any cash or investments held in an ISA. Because of these great tax breaks, ISAs come with an annual allowance each tax year. This is a limit to the amount of money you can pay into the ISA while still getting the tax benefits.
The ISA allowance started at £7,000 and didn’t budge until 2008, when it was bumped up by a measly £200. But since then it has come on leaps and bounds, increasing almost every tax year until it reached £20,000 in 2017, where it remains to this day.
If you had used your full ISA allowance every year since ISAs started 20 years ago, you would have paid in a total of £209,560 (not including this year’s ISA allowance). If you’d invested on 6 April every year and put your money in the average UK stock market fund, your money would have grown to £394,972 over the two decades!*
If you’d invested on 6 April every year and put your money in the average UK stock market fund, your money would have grown to £394,972 over the two decades!*
Of course not everybody can afford to use their full ISA allowance each year, and investments can go down in value as well as up. But these huge numbers show just how valuable it can be to pay in as much as you can. And with the ISA allowance being much bigger today than it was 20 years ago, the opportunity to make the most of your money should be even greater in the future.
Our Stocks & Shares ISA is a simple, low-cost account that makes it easy to invest. When you open an ISA or transfer your other ISAs to Bestinvest you’ll get:
Or if you have any questions about ISAs, just give us a call on 020 7189 9999.
*Based on the performance of the IA UK All Companies sector average, net of fees (which may vary between providers).