Individual Savings Accounts were introduced in the late 1990s and replaced PEPs (Personal Equity Plans) and TESSAs (Tax-Exempt Special Savings Account).
Since then, they have become by far the most popular way of savings and investing, but have also expanded in number; there are now seven different types of ISA.
You would be forgiven if this bewildering array of ISAs leaves you confused. So we thought a quick, at a glance guide, to the seven different types of ISA would be useful.
#1: The original ISA
This option allows anyone over the age of 16, if they are using Cash, or 18 if they want Stocks & Shares, to contribute up to £15,240 in the current tax year.
It is available to investors as a Stocks & Shares ISA and savers as a Cash ISA; both elements can be mixed and matched too.
The maximum contribution will rise to £20,000 per year from 6th April 2017.
#2: Junior ISA
As the name suggests, the Junior ISA is aimed at parents who want to save for their children.
Money can be held in Cash, Stocks & Shares or a combination of both, although the maximum contributions are limited to £4,080.
Children can get access to the accumulated capital when they turn 18 or allow it to convert into an original ISA.
#3: Help to Buy ISA
Although set to be withdrawn in December, this type of ISA was introduced, unsurprisingly, to help people save for a deposit on their first home.
The maximum allowable contributions are £200 per month, although a lump sum of £1,200 can be pain to kick start the ISA. Unlike other types of ISA the Government will add a bonus of 25% of the amount paid in when a house is bought.
The Government bonus is capped at £3,000.
The Help to Buy ISA is to be withdrawn later this year, although the new Lifetime ISA will help first time buyers save for a deposit.
#4: Inheritance ISA
Until recently the tax-efficiency of an ISA was lost on death, this changed when the Inheritance ISA was introduced.
This type of ISA is available to anyone whose spouse or civil partner died after 3rd December 2014. It effectively increases the survivor’s ISA allowance by an amount equal to the value of the spouse or civil partner’s ISA at the time of their death.
#5: Innovative Finance ISA
Partly due to low interest rates, peer to peer lending and crowdfunding have risen in popularity over the past few years.
Until recently returns from this type of investing were taxable. However, the introduction of the Innovative Finance ISA means that investors can shelter returns from peer to peer lending and crowdfunding from tax.
#6: Flexible ISA
This allows savers and investors to dip into their ISA, withdraw money, and repay it, within the same tax-year.
Until recently any withdrawals could not be repaid without eating in to the annual ISA allowance. The introduction of the Flexible ISA solved this problem.
#7: Lifetime ISA
The Lifetime ISA was introduced in George Osborne’s final Budget and will be available from April 2017.
It will attempt to allow savers and investors, below the age of 40, to put money aside for the twin goals of retirement and buying their first home.
The maximum annual contribution will be £4,000 per year and the Government will add a bonus of 25% of the amount contributed.
The money has to be put towards buying a first home or retirement; if it is withdrawn for any other purpose a penalty will be payable.
You can learn more about this newest form of ISA by clicking here.
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