ISAs were launched by the Government in 1999 to replace TESSAs and PEPs as a tax efficient way of saving and investing money – you do not have to pay tax on any interest, capital gains or profits arising from the account.

ISAs are available to all adults; £7,000 can be invested per tax year (April 6 until April 5 the following year), and this allowance can either be split – up to £3,000 in cash and the rest in shares, or you can invest the entire £7,000 in shares.

The reports – Individual Attitudes to Saving: Effect of ISAs on People’s Saving Behaviour Research into Attitudes and Motivations for Saving in ISAs and Saving in ISA revealed that the tax incentives offered through ISAs have encouraged people to save; one third of adults in the UK now has an ISA.

Economic Secretary to the Treasury, Kitty Ussher, MP, said: “This research helps to confirm the success of ISAs in encouraging people to save, enabling them to build up a financial asset.

“Next year we will be introducing reforms to build on that success. We will make ISAs simpler to use, more flexible, and more generous with a higher investment limit. We hope that these changes encourage even more people to use ISAs to save.”

The reforms, due to come into effect in April 2008, will see the ISA investment allowance go up to £7,200, with the cash portion allowance increasing to £3,600, and savers will be able to transfer some or all of the money saved in previous tax years from cash ISAs to stocks and shares ISAs without affecting their annual allowance.

Find out more about ISA savings

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