ISAs were introduced on 6 April 1999 to replace two existing tax efficient schemes Personal Equity Plans (PEPs) and tax exempt special savings accounts (TESSAs). The attractions of ISAs are that they are free of income and capital gains tax, while you do not have to declare them on your tax return. Dividends from equities, however, have been partially taxed at source at the rate of 10 percent since 5 April 2004. But higher rate taxpayers do not have to pay any extra tax on dividends.
You have a choice of putting your ISA savings into cash, equity and bond funds, or individual shares and a few life insurance company investments. Up to £15,240 can be placed into your ISA each tax year (which runs from 6 April to 5 April the following year). This amount can be invested entirely into a cash ISA, or entirely into a stocks and shares ISA, or between the two in any proportions.
The maximum investment of £15,240 a year is not a substantial sum of money for some investors, but given that you can enjoy capital growth free of tax, it is advisable to take advantage of it. You should check for the most up-to-date figures, as these can change.
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