Happy birthday ISA: how 25 years of tax-efficient investing has helped you to grow your wealth

a birthday cake with candles and the number “25”

What were you doing in 1999?

A quarter of a century ago you might have been enjoying The Sixth Sense in the cinema, mourning the passing of pop legend Dusty Springfield, or connecting your household to the internet for the first time (just 20% of UK households had web access in 1999).

It was also a big year in the financial world, with the Euro coming into force on 1 January, followed by an innovative new savings vehicle introduced by Gordon Brown.

The Individual Savings Account (ISA) arrived in the UK on 6 April 1999, and has gone on to become one of the most popular ways to grow wealth. Indeed, Fidelity reports that ISAs have attracted more than £700 billion of cash and stock market investments since their introduction.

So, with the ISA celebrating its silver anniversary in 2024, read on for a brief look back at its history, and some valuable ISA changes coming into force in 2024/25 that you could benefit from.

ISAs have become one of the UK’s most popular savings products

On 6 April 1999, then chancellor Gordon Brown introduced ISAs in the UK. Replacing the earlier Personal Equity Plan (PEP) and Tax-Exempt Special Savings Account (TESSA), they were introduced to encourage more people to save or invest their money, free from Income Tax and Capital Gains Tax (CGT).

On its launch in 1999, the ISA subscription limit was just £7,000, with options such as “maxi” and “mini” ISAs giving consumers the choice of choosing equity-based investments or saving in cash.

Since then, the government have introduced new types of ISA, and the subscription limit has increased to £20,000 (2024/25 tax year).

  • The Junior ISA, which enables parents/guardians to save for under-18-year-olds, launched in 2011 with an initial limit of £3,600, rising to £9,000 by 2020/21.
  • The Help to Buy ISA launched in 2015, then closed to new entrants in 2019.
  • The Innovative Finance ISA came out in 2016, enabling consumers to invest in “peer-to-peer” lending.
  • The Lifetime ISA arrived in 2017. Open to those aged 18 to 39, it allows first-time buyers to save up to £4,000 a year tax-efficiently (2024/25) and receive a 25% government bonus towards their property deposit.

ISAs have proved extremely popular. In the first year, Fidelity reports that £28.4 billion was paid into 9.3 million adult ISAs but, by the 2021/22 tax year, there was an estimated £66.9 billion paid into 11.8 million ISAs.

More than 22 million Brits have an ISA and that they will save consumers around £7 billion in tax this year.

The main benefit of ISAs is that:

  • Interest on any money you save in cash is paid free from Income Tax
  • Any gains you make on money invested is free of CGT, Dividend Tax, and Income Tax
  • Any money you contribute to a Lifetime ISA (up to the £4,000 limit) is eligible for a 25% government bonus (note that a 25% withdrawal charge applies if you withdraw this money before the age of 60 for anything other than the deposit for a first home).

The tax-efficiency and flexibility of ISAs has benefited many millions of savers – indeed, Fidelity reports that there are now more than 4,000 “ISA millionaires”!

Stocks and Shares ISAs have performed well over the last 25 years

Had you invested in an ISA when launched in 1999, HL say that you’d have seen a strong positive return.

  • The average Cash ISA started in 1999 could have turned £1,000 into £1,797 a quarter of a century later.
  • If you had invested £1,000 investment in a global tracker fund in a Stocks and Shares ISA that could have grown to £4,271 by early 2024.

Remember that past performance isn’t a guide to the future. And unlike the security of cash savings, the value of investments goes up and down, so you can get back less than you put in.

The future of ISAs – and a new UK ISA?

As ISAs enter their next quarter century, their evolution continues. In the 2024/25, there are several useful changes to ISA rules that could benefit you.

Firstly, you can now open and pay into multiple ISAs of the same type each tax year. So, for example, if you opened a Cash ISA this year you could now also open a second Cash ISA in the same tax year if you found a provider offering a superior interest rate.

Previously, you could only contribute to one of each type of ISA every year.

In addition, from 2024/25 you can now transfer part of your ISA balance from one ISA provider to another, regardless of when the money was paid in. Historically, you had to transfer your entire ISA of that type from the current tax year or nothing at all.

The minimum age to open an adult Cash ISA has increased from 16 to 18 years old. This will bring the ISA in line with the minimum age requirement for other types of adult ISA.

Finally, in the 2024 Spring Budget, the chancellor announced a consultation into a new UK ISA.

Under the plans, individuals will benefit from a new ISA allowance of £5,000 in addition to the existing ISA allowance of £20,000. The intention is that this will “support a culture of investment in the UK and to give people the opportunity to invest and benefit from the UK’s vibrant capital markets and high-growth companies”.

If the plans are enacted, this could increase your ISA subscription limit by £5,000. However, some critics of the plan have highlighted the issue that investing solely in the UK might not diversify your assets widely enough and might not align with your specific risk tolerance or long-term goals.

Watch this space!

Get in touch

To find out more about how we can help you build your wealth tax-efficiently over the next 25 years, please get in touch. Email or call us on 01454 416653.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

What do our clients have to say?