What do you know about the ISA? Most people are familiar with certain aspects of it, such as that it offers a form of tax-free savings and investment and that it is important to look for the very best ISAs to make sure you are making the most of your money. But what do you know about the history of the ISA? Read on to find out more about it.
The Individual Savings Account has been available for consumers since 1999 and they were first put forward in a budget made by Gordon Brown after he became Chancellor of the Exchequer. This is how modern ISAs came about, but the principle behind them has existed for longer than that.
Principle of tax-free savings and investments
We can trace the principle of tax-free savings and investments back to the late 1980s, when initiatives were put into place first to help people invest in the stock market, and then to save more money without having to pay any tax on the interest. These initiatives were called Personal Equity Plans and Tax-Exempt Special Savings Accounts respectively. One of the criticisms of ISAs when they were first introduced was that they did not allow people to save as much as they had before. They were also thought to be too complicated.
However, proponents of the new type of financial product said that investment ISAs would allow people to save over the long-term. In some ways, circumstances helped to make the investment ISA very popular: this was around the time of the tech-boom and everyone wanted to get in on the growth. Originally, the cash component of ISAs was meant to be phased out over time.
As you probably know, this didn’t happen. Events such as the collapse of the tech-boom and the terrorist attacks in the United States had a detrimental impact on the stock market, which affected many people’s shares ISA and encouraged more people to save in the cash ISA instead. This is partly why today the vast majority of money in ISAs is found in cash ISAs.
Many people still invest in investment ISAs, though, and the best ISAs have done very well despite troubled economic circumstances. Also, as ISAs have become more entrenched in our national psyche and the annual limit has continued to rise (it is now able to rise with inflation, a change that came into effect for the 2011/2012 tax year), different types of investment ISA have been developed. For example, as well as ISAs that track all the shares on the London Stock Exchange, there are also climate change ISAs that invest in companies with a lower than average carbon footprint.
Recent developments have also extended the ISA range: when the Child Trust Fund was abolished, Junior ISAs were set up in their place to encourage parents to save for their children, although the state will not contribute to these as they did to Trust Funds. Overall, even though tax efficient savings have changed over the years, they are very important for savings and investments and their initial purpose – to encourage people to save and invest – remains the same as it always was.
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