25 years of the ISA: 4 important takeaways for savers and investors

In 1999, the government introduced a new way of saving and investing tax-efficiently: an Individual Savings Account (ISA).

This new type of account took two forms: the Cash ISA and Stocks and Shares ISA, replacing tax-exempt special savings accounts (TESSAs) and personal equity plans (PEPs).

25 years on, several million Brits hold an ISA – the government reports that around 11.8 million adult ISA accounts existed in the 2021/22 tax year.

So, are ISAs still worth it, and what can savers and investors expect next? Keep reading to find out four key takeaways from 25 years of the ISA.

1. ISAs remain a tax-efficient avenue for saving and investing

When it comes to tax-efficient saving and investing, the ISA has stood the test of time.

Within a Cash ISA, any interest your money earns will not be subject to Income Tax. And, within a Stocks and Shares ISA, your gains won’t attract Income Tax, Dividend Tax, or Capital Gains Tax (CGT) either.

It is clear that ISAs have proved effective for building wealth in many cases. According to an report from August 2023, there are now more than 4,000 “ISA millionaires” in the UK, with the average pot standing at £1.4 million for these individuals.

So, while the usual risks apply when it comes to investing within a Stocks and Shares ISA, and the interest earned on funds in a Cash ISA may vary, these accounts remain an accessible, tax-efficient avenue for saving and investing.

2. The annual contribution limit has increased since 1999

When the government first introduced Cash ISAs and Stocks and Shares ISAs in 1999, the annual subscription limit was just £7,000 across both accounts.

As of the 2024/25 tax year, these accounts have a total subscription limit of £20,000 – although this amount has not increased since the 2017/18 tax year, and may remain the same in the coming tax years.

There are also individual contribution allowances applied to newer forms of the ISA, which you will read about in the next section.

3. There are now 5 types of ISA

Since establishing the two original ISAs in 1999, the government then introduced four new types of ISA.

One of these accounts, the Help to Buy ISA, is no longer available. This leaves three additional types of ISA for consumers to consider.

Junior ISA

In November 2011, the government announced that a new type of ISA would become available: the Junior ISA (JISA).

The JISA was brought in to replace Child Trust Funds (CTFs).

JISAs allow you to make tax-efficient savings and investments on behalf of a child, through either a Cash or Stocks and Shares JISA. When the child turns 18, the JISA becomes an adult ISA, and the child becomes fully responsible for the account.

When first introduced, the annual JISA subscription limit was £3,600. In 2024/25, it stands at £9,000, and is separate from the £20,000 allowance placed on adult ISAs. You can split the £9,000 allowance between the Cash and Stocks and Shares variants as you see fit.

Lifetime ISA

In addition to the JISA, the government created the Lifetime ISA (LISA) in 2017. The LISA is for 18-to-40-year-olds and is designed for two distinct purposes: saving for a first home and retirement.

Its annual subscription limit is £4,000 (counting as part of your overall adult ISA allowance), and all contributions will receive a 25% top-up from the government. That means you could receive up to £1,000 in government bonus each tax year.

While the LISA has its limitations – as of the 2024/25 tax year, you’ll face a 25% withdrawal fee if you withdraw your funds for purposes other than buying your first home or after you turn 60 – it is another tax-efficient way to save up for important milestones.

Innovative Finance ISA

The Innovative Finance ISA gives investors a peer-to-peer lending opportunity by linking them to borrowers, such as businesses or individuals.

In some cases, these accounts allow individuals to earn high interest rates on the loans they offer, but as with most investment opportunities, your capital is at risk.

4. The government is still developing the ISA

ISAs appear to be an ever-evolving creation, with the government introducing new types of account, as well as new rules for existing ones, on a continual basis.

Indeed, when the 2024/25 tax year began, the government implemented the following changes:

Removing the single-account limit

Previously, a person could only open and pay into one type of ISA in a single tax year – whereas from 6 April 2024, you can now open multiple types of each ISA, including JISAs and LISAs.

Introducing partial transfers

In prior tax years, if you wished to transfer funds from your existing ISA provider to a new provider, you had to transfer all the money held in that account.

Now, ISA holders can conduct partial transfers, meaning that you could remove some funds from an existing ISA when you open a new one with a different provider, without needing to empty the original account altogether.

An increase in the minimum age for Cash ISAs

As of 6 April 2024, a person has to be 18 to open a Cash ISA, whereas previously, anyone age 16 or above could do so.

Scrapping re-applications

If an ISA had seen no activity for one year, the account holder would have essentially needed to re-apply to hold the account.

In the 2024/25 tax year and beyond, though, this is no longer the case.

An expansion of Innovative Finance ISA rules

Those with Innovative Finance ISAs can now invest in long-term asset funds and open-ended property funds while benefiting from extended notice periods.

The newly proposed British ISA

Chancellor Jeremy Hunt proposed a new type of ISA in his 2024 Spring Budget: the British ISA.

This ISA would add £5,000 onto the adult ISA subscription limit for UK-focused investments only.

The British ISA could provide even greater tax-efficient investment opportunities, although it may also pose some risk of overexposure to UK holdings.

So, if the British ISA comes into place, it may be worth contacting your Kellands financial planner before investing.

A Kellands financial planner can help you use the financial opportunities at your fingertips

For the past 25 years, ISAs have offered Brits the opportunity to save and invest tax-efficiently for a brighter future.

Here at Kellands, we are committed to helping our clients explore all the potential avenues for growing their wealth. Once we’ve established an appropriate route for you, we’ll stay by your side to help you navigate the journey to financial prosperity.

To learn more about working with us, email hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate tax planning.

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