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What is an ISA?

An ISA, otherwise known as an individual savings account, is a financial instrument available to residents of the United Kingdom which is designed purely for investment and savings and attracts a whole host of tax incentives from the UK government. ISA's were originally introduced in April 1999 as a replacement for Personal Equity Plans and Tax Exempt Special Savings Accounts.

Originally there were two types of ISA's, a mini ISA and a maxi ISA, although the distinction between the two was abolished in 2007 as it seemed to confuse the UK public. In effect an ISA allows the owner to invest in stocks, shares and other agreed investment instruments together with general savings accounts. The main attraction of an ISA is the fact that income (dividends and interest) and all capital gains are free of tax.

The amount which can be transferred into an ISA in any tax year is often amended by the government but the current level is £7200 in stocks and shares or up to £3600 in cash. The ISA can be very useful to a number of UK consumers and yet again it is essential that professional financial advice is obtained prior to taking out an ISA.

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