Individual Savings Account (ISA)
The Individual Savings Account (ISA) was launched on 6 April 1999 to replace the Personal Equity Plan ( PEP ) and Tax Exempt Special Savings Account ( TESSA ) regimes that had been introduced by past governments.
At launch, it was guaranteed to run for at least 10 years, offering some certainty to those who want to use the plan for medium and long-term savings and investments. However, the ISA structure was criticised by some as overly complicated and the tax advantages it confers are less attractive than those of its predecessors.
There are two types of ISA: Maxi ISAs and Mini ISAs, on top of which you can split your £7,000 annual ISA allowance across two investment elements: cash and stocks and shares (both of which, just to add to the confusion, may also contain a life assurance element, depending on how the Inland Revenue classify the particular policy).
A Maxi ISA (up to £7,000 per tax year) allows you to invest in both elements of an ISA. However there is a limit of £3,000 for the cash element. The stocks and shares element may make up the remainder of the allowance or may take up the entire allowance, in which case you must forego investing in the cash element. You are only allowed to use one company to provide your Maxi ISA in any tax year.
A Mini ISA (limit of £3,000 per tax year in cash or £4,000 per tax year in stocks and shares) allows you to invest in either of the investment elements and with more than one company. So you could have a cash Mini ISA with your building society and a Mini stocks and shares ISA with a fund manager.