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ISAs explained.

What is an ISA?

An ISA (Individual Savings Account) is a ‘wrapper’ designed to go around an investment to make it tax-efficient.

For example, it can be used to 'wrap' around a product such as a Unit Trust. By investing in a Unit Trust inside an ISA wrapper, any income or growth you receive is free from personal tax. 

ISAs can offer a great way to save for the future tax-efficiently. When you invest in an ISA you don't have to pay Income Tax or Capital Gains Tax (CGT) on any returns you receive – no matter how much the investment grows in the future, or how much you take out.

Although most Unit Trust investments have no minimum term, you should be prepared to invest for a period of at least five years. Investments in shares are considered suitable for the medium to long term.

There are two types of ISAs: Cash ISA and Stocks and Shares ISA.

Cash ISAs
are simply savings accounts where the interest isn't taxed, and most Cash ISAs offer the same level of security for your money as a building society, or bank deposit account.

Stocks and Shares ISAs
let you save money in a range of investments, such as shares, Unit Trusts, Open Ended Investment Companies (OEICs) and Investment Trusts.

In a Stocks and Shares ISA your investment can go down as well as up, returns are not guaranteed and you may get back less than you invest.

Each tax year you can choose how you'd like to invest your ISA allowance. You can invest in a Cash ISA, Stocks and Shares ISA, or a combination of both. However, there are rules around where and how much you can invest.

The value of tax savings and eligibility to invest in an ISA will depend on individual circumstances, and tax rules may change in the future. Read more about ISA rules.

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