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A Brief History of ISAs

The Treasury has insured that ISAs will remain in tact beyond the originally proposed end date of 2010. In fact, Ed Ballshas, the Economic Secretary, has stated that ISAs are a "vital part" of the Government's plan to provide incentives for long term savings. Given the importance of this investment tool it is a good idea to understand the history of ISAs.

Early attempts to introduce the ISA were not successful. The ISA was intended to replace Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs). The former were for equity investments and the latter for cash investments. The ISA was not initially well received since the ISAs limit of £7000 with £3000 in cash was considerably less than the former instruments' limits. The two former tools allowed tax exempt savings of up to £10800 per year (£9000 per year into PEPs and £9000 spread over 5 years into a TESSA). Needless to say, many individual investors and the investment community did not see this as an increased incentive for long term savings.

In addition to this, there were several rules and restrictions associated with ISAs that many deemed confusing at best. In addition there were restrictions on tax-credits associated with the Advanced Corporation Tax rules. Most predicted that all of these negative components would prohibit the success of ISAs.

However, the stock market technology boom of 1999 and 2000 added fuel to the ISA fire. With the enormous growth in this sector, investors were less concerned about the details of ISAs and more concerned about getting in quickly. In the 12 months after the launch of ISAs, most accounts suggest sales exceeded £9 billion.

Even after the crash of the technology market, and the subsequent rebuilding of the investment sector, the ISA has continued to thrive. At the end of 2006 ISAs had an investment balance of £220 billion and roughly 17% of the adult population held at least one ISA account.

The Government continues to support ISAs, and rumors of reducing limits have not come to fruition. In fact, the complex rules are being simplified in April 2008, and the Government has stated that the product will be extended beyond 2010.