Individual Savings Accounts, more commonly known as ISAs, have been around for over 20 years. Between 2020 and 2021, an additional 860,000 people open accounts for their saving and investment purposes and there are millions in the UK with this type of account.
Originally a replacement for a Personal Equity Plan, the ISA remains a popular investment tool in their own right. Let’s look at how ISAs have evolved to what they are today.
The Personal Equity Plan
In 1987, the Personal Equity Plan, or PEP, was born to hold funds that were capital gains and income tax-free. It allowed investors an annual allowance of £2,400, which had increased to £9,000 just over a decade later.
It was in 1999 that the PEP became known as the ISA. Investments in companies and other collective investments would now be placed into a Maxi ISA. This was, in essence, a tax wrapper, protecting investments from paying tax. The Mini ISA, which is more commonly known as the cash ISA, was set up for investors who preferred to grow savings from money generated from interest rates.
Investors could invest a total of £7,000 in both ISAs in a tax year. Although there were limits imposed for both, albeit an uneven amount. There was a deposit limit of £4,000 for the Maxi ISA and £3,000 for the Mini ISA. It allowed people to invest in both ISAs, without having to decide which was the best investment ISA for them, overall. However, the total amount they could invest per year was £2,000 less than what they could originally invest in a PEP.
The Overhaul
It was seven years later that the Maxi ISA began to be more commonly known as the Stocks and Shares ISAs. ISA owners were given the choice to convert previous ISA cash savings into this new type of ISA if they wanted. However, the deposit limit didn’t change.
Then, three years later, the Stocks and Shares ISAs allowance increased to £10,200. In 2010, it was announced that increases in the Stocks and Shares ISA would be linked to the Retail Price Index. Three years after that, in 2013, the yearly allowance was raised to £11,880.
ISA Reformation
Between 2014 and 2016, there were many changes to the ISAs. Now, ISA investors could split the allowance between the Cash ISA and the Stocks and Shares ISA any way they wanted. They could also transfer money easily between the two, which previously wasn’t allowed.
By 2016, there was a £20,000 annual limit for the Stocks and Shares ISA, which has remained unchanged 6 years later, for the financial year 2022 – 2023. Although there are 4 types of ISA available, there are a fair amount of providers offering them, which is great for potential investors looking for the best investment ISA for their needs. Investors will need to look at the service providers to decide what works for them and consider aspects such as dealing with commissions or admin fees.
Even more, it’s good to reflect on your overall intentions. For example, is the Stocks and Shares ISA appropriate for your long-term saving ambitions? Knowing why an ISA is the product for someone, and its purpose will help narrow down what product will do the most with their money.
The evolution of the Stocks and Shares ISAs is an interesting part of the history of ISAs as a whole. Being a tax-wrapper has been a bonus for investors, as has the increased yearly deposit of £20,000. This sum allows investors more flexibility than ever when it comes to the yearly amount they can invest in their ISA, which might mean a higher return than the amount they invested.
