The Isa - your flexible friend

12 March 2019

With just days to go until the deadline for the 2018/19 Isa allowance, it’s time to use it or lose it

The Individual Savings Account (Isa) is still going strong 20 years since it was first launched.

Today, Isas hold nest eggs to the tune of £608 billion for savers up and down the country. Last year alone, savers were able to cut their tax bill by around £2.9 billion.

The fundamentals of Isas remain unchanged since their launch in 1999: any money put into them is shielded from tax. Once money is in an Isa, you will not have to pay tax on any interest it earns or on any capital gains or on dividends if you invest it.

There is an annual cap on the amount you can put in an Isa, but after that there are no limits. If you keep filling your Isa allowance every year, in time it is possible that you could become an Isa millionaire – and there still would be no tax to pay.

While the basics have not changed, Isas have come a long way over the past 20 years. At their launch, there were two types: now there are six as four more have been added to the Isa family over the years. In this guide, we talk through the Isas available, who they might be suitable for, the rules involved and where to start.

The Cash Isa still remains the nation’s favourite, and offers a great starting point for squirrelling away a savings pot for the future.

The Stocks and Shares Isa is gaining in popularity as people look for better returns by taking some risk and investing.

While more people have Cash Isas, Stocks and Shares Isas account for a greater share of the market value of all Isas (55% versus 44%).

The Junior Isa is perfect for starting a nest egg for your children, whether you choose to invest or save money for them.

Help to Buy and Lifetime Isas (Lisas) can help you save towards your first home, or towards retirement in the case of the Lisa.

And the Innovative Finance Isa allows you to invest in the peer-to-peer sector.

The rules have also changed considerably over the past two decades.

When they first arrived, the maximum you could put into a Cash Isa was £3,000. Even once inflation is considered, the £20,000 maximum today is a huge increase.

Isas are also a lot more flexible today. You can switch your money between Cash and Stocks and Shares Isas, and invest into more than one type of Isa in a single tax year.

One thing that has not changed is the deadline. Your annual allowance resets on 6 April 2019, whether or not you’ve used your full allowance.

Your allowance for the 2018/19 tax year expires on 5 April 2019, so you don’t have long to take advantage of it if you have not already.

If you don’t use it, you lose it so decide which Isa or Isas are for you and get started if you haven’t already done so.