Handbook of Investment Administration

Chapter 10

INDIVIDUAL SAVINGS ACCOUNTS (ISAs)

10.1 INTRODUCTION

An ISA is an acronym standing for an Individual Savings Account. The ISA itself is often referred to as an investment wrapper because it is essentially an account that holds other investments, such as deposits, shares and unit trusts and allows them to be invested in a tax-efficient manner.

Their tax advantages have made them very popular and as at 5 April 2006, £111 billion was held in cash ISAs and £70 billion in stocks and shares ISAs.

10.2 DEVELOPMENT OF ISAs AND PEPs

Encouraging savings and investment has been a key part of the economic policies of governments for many years. As a result, successive governments have offered tax advantages to encourage both saving and wider share ownership.

ISAs and PEPs before them have been one of the main investment products that have received preferential tax treatment.

PEPs were introduced in 1987 to encourage wider share ownership. Originally, a general PEP was allowed, which could hold a range of shares and where the income arising and any capital growth were free of both income tax and capital gains tax.

This was extended by the introduction of a single company PEP where, as the name suggests, the investor could hold an investment in just one company and benefit from the income tax and capital gains tax exemption.

Over the years, single company PEPs grew substantially but presented problems as the requirement to hold just a single investment prevented investors diversifying ...