What is an ISA?
An ISA, or Individual Savings Account, is not an investment in its own right. The best way to think of an ISA is as a ‘wrapper’ in which you can shelter savings and investments from tax.
Within an ISA you pay no capital gains tax and no UK income tax. You don’t even need to declare ISAs on your tax return, and less tax means higher returns for you.
Best of all, it often costs no more to place cash or investments inside an ISA, so many investors receive these benefits free. Used regularly, your annual ISA allowance offers you the chance to create a substantial portfolio sheltered from the taxman, although remember tax rules can change, and the benefits will depend on your circumstances.
The cautious can simply use Cash ISAs as a secure place to hold their money. The more adventurous can invest in the stock market through a Stocks and Shares ISA in search of superior returns. You can even do both by taking advantage of an ISA’s flexibility to spread savings between different types of assets.