ISAs were introduced by the Government to encourage more people to save. Investing in an ISA allows you to shelter your money from the taxman, as you can keep all the proceeds that you receive from that investment without paying income or capital gains tax. You don't even have to declare your ISA on your tax return.
Holders of Individual Savings Accounts (ISAs) have been given more freedom in how they invest their money, under Government proposals which came into force in April 2008.
The new rules
The Treasury has confirmed it will scrap the mini and maxi elements, leaving just a single ISA wrapper.
This means savers can switch their money into higher-risk stocks and shares ISAs without losing tax benefits. The insurance ISA, which has proved unpopular, is to be scrapped.
ISA holders will be able to transfer any cash savings they have built up from previous years' allowances into stocks and shares ISAs without affecting their annual investment limit.
Investors will also be able to transfer any new cash savings into equities in the future. They won't be able to transfer any ISA funds invested in equities back into cash. Savers will be able to transfer their cash funds away from their current ISA provider when they swap into stocks and shares.
Cash ISAs have proved far more popular than equity ISAs. Currently £111bn are invested in cash ISAs, compared with £70bn invested in equity ISAs, even though the cash component has lower investment limits.
People will be allowed to save up to £3,600 in a cash ISA and up to £7,200 in a stocks and shares ISA, within an overall annual savings limit of £7,200.
Tax assumptions are those currently applicable and are subject to statutory change. The value of the tax advantages will depend on your individual financial circumstances. The value of the funds can fall as well as rise. Past performance is no indication or guarantee of future returns.