ACCA ATX ^UK Syllabus A1. Income tax - Individual Savings Accounts and other tax exempt investments - Notes ^{9 / 9}

Individual Savings Accounts (ISA’s)

have for many years been the most common form of tax efficient investment. 

The individual savings account (ISA) investment limit for the tax year 2024/25 is £20,000.

The £20,000 limit is completely flexible, so a person can invest £20,000 in a cash ISA, or they can invest £20,000 in a stocks and shares ISA, or in any combination of the two – such as £10,000 in a cash ISA and £10,000 in a stocks and shares ISA.

The main advantages of ISAs are:

1. Income is free of income tax (since the introduction of the savings income nil rate band for basic and higher rate taxpayers this is less likely to be an advantage for most individuals. However, it would still be an advantage to an additional rate taxpayer and other taxpayers who have already used their nil rate band).

2. Disposals of investments within an ISA are free from capital gains tax.

Components of an ISA

1. Cash - for example in a bank account

2. Stocks and shares listed anywhere in the world

National savings

These offer a variety of products some of which are tax free, e.g. National Savings Certificates
However, some National Savings & Investments (NS&I) products are taxable, namely:

• NS&I Easy Access account / NS&I Direct Saver Account

• NS&I Investments accounts

• The income is received gross without deduction of tax at source

  The nature of the investments are historically risk free.