ISA allowances history and why adding the maximum makes sense

Posted by Paul Sutherland on Thu, Feb 16, 2012 @ 01:30 PM

ISA allowances historyToday I want to share with you an overview of historic ISA allowances. This is important as it shows the true potential of what’s possible when investing in ISAs. ISA history also ties in very nicely with Tip #7, ‘Invest the Max’ from our Top 10 Tips for Successful ISA Investing

As you will see from the ISA allowances history timeline below, Stocks and Shares ISAs originally originated as PEPs. PEPs are Personal Equity Plans and anybody who invested into a PEP will have seen it automatically turn into an ISA.

ISA allowances history timeline

  • January 1, 1987 – ISA history as we know it begins with the General PEP introduced by Nigel Lawson, with a Calendar Year allowance of £2,400.
  • January 1, 1988 - General PEP allowance increased to £3,000.
  • April 6, 1989 - General PEP allowance moves from calendar year to tax year and allowance increased to £4,800. Investors enjoy both the 1989 £3,000 calendar year allowance and the new £4,800 tax year allowance.
  • April 6, 1990 - General PEP allowance increased to £6,000.
  • April 6, 1991 - Norman Lamont announces the introduction of the single company PEP allowance of £3,000 alongside the general PEP allowance, bringing the total amount that can be sheltered in any one tax year to £9,000 from January 1992.
  • April 6, 1999 - Gordon Brown introduces ISA's to replace PEP allowances. Dividend taxation also changes and the tax credit attached to dividends falls to 10%. ISA and Pep managers can reclaim this tax credit. The ISA allowance is £7,000.
  • April 6, 2004 - ISA and PEP managers are no longer allowed to reclaim the 10% tax credit attached to dividends. This leaves ISA investors £10.00 worse off for every £100.00 gross dividend paid.
  • December 2, 2004 - The Chancellor announces in his pre-budget speech that he intends to maintain the annual ISA allowance at £7,000. The allowance had been due to fall to £5,000.
  • March 15, 2005 – In one of the most significant events in ISA allowances history, The Chancellor announces in his budget speech that the £7,000 ISA tax-free savings allowance will be extended to 2010.
  • November 2006 -The economic secretary to the Treasury, Ed Balls MP, announced the largest ever reform package to the ISA regime. The reform package includes a commitment to a permanent future for ISAs beyond 2010, the removal of the mini/maxi distinction, the rolling of PEPs into the ISA wrapper and the rollover of some existing savings vehicles, such as Child Trust Fund on maturity, into ISAs.
  • November 2006 -The Economic Secretary to the Treasury, Ed Balls, said plans to reform the way investors can allocate the money they have saved in ISAs would include allowing them to switch money from a cash ISA in a previous tax year to a stocks and shares ISA.
  • March 21, 2007 - The Chancellor announces in his budget speech that from April 2008 Britons will be able to put an extra £600 a year into a cash ISA savings account and an extra £200 into stocks and shares ISA.
  • March 2008 - Significant and welcome changes were made to ISAs in 2008/09, to see a summary of the changes made go to ISA Rules 2009.
  • April, 2009 - The Chancellor announces in his budget speech that the ISA limit will be raised to £10,200, of which £5,100 can be held in cash. The new limit will apply to people aged 50 and over in 2009-10, with effect from 6 October 2009, and to all from 2010-11 onwards. People aged 50 and over will be able to subscribe the full amount of the increased subscription limit for 2009-10 from 6 October 2009. All ISA investors will be able to take advantage of the new limits from 6 April 2010.
  • March 2010 - The Chancellor announces in his budget speech that as from 6th April 2011, the annual ISA limit would rise in line with inflation by tracking the retail price index.
  • October 2010 – In another major development in ISA history, the Government confirms launching a "Junior ISA" scheme following the scrapping of Child Trust Funds. The scheme is to encourage saving for children, however there will be no state expenditure on the account.
  • March 31, 2011 - The Government confirmed the proposed Junior ISA. Parents will be able to save up to £3,000 a year tax-free for their children from the autumn of 2011. The Junior ISA launches 1st November 2011 aiming to offer parents a simple, tax-free way of saving money for their children following the end of Child Trust Funds (CTF). Unlike CTFs, the Government will not contribute anything to the Junior ISA saving accounts.
  • September 2011- The Government gave more details on the proposed Junior ISA. Children living in the UK who do not have a Child Trust Fund account will be able to have a Junior ISA. People will be able to put money into a cash account or ‘stocks and shares’ account. Each child will be able to have one cash and one ‘stocks and shares’ Junior ISA at any one time. There will be a total yearly limit of £3,600 for all payments into these accounts. Accounts will become ISAs when the child is 18.

Why historic ISA allowances matter

Tip #7 of our Top Ten Tips for Successful ISA Investing is ‘Invest the Max.’

An investor who followed Tip #7 and ‘Invested the Max’ throughout ISA history would have put aside £183,480. If the investor had a partner who also added the maximum annual contributions, the amount would be doubled to £366,960.

The reason why we are seeing more and more ISA millionaires appear on the web is because they have religiously saved the maximum each year. Their maximum allowance is then invested into quality investments such as investment funds that aim for long-term capital growth. The good news is that ISA history is set to continue, as ISAs are here to stay for the long-term and the annual allowance is set to increase each year by the same percentage as the UK retail price index.

The current annual allowance is £10,680 (2011/2012), the highest in ISA history. This means over the next ten years a couple committed to ISA investing would have the opportunity to save and invest close to a quarter of a million pounds. A couple investing £1780 per month into ISAs, and growing them annually at 13.5%, would result in tax-free accounts valued at £226,280 making a grand household total of £452,559 tax-free.

I’m sure you would agree with me that investing in ISAs for the long-term is a great way to provide financial security for you, your family and future generations of your family.


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Please note: In future tax years we will update the ISA history maintained here.

Please remember that past performance should not be used as a guide to future performance. The value of investments can go down as well as up and you may not get back the amount you originally invest.

Topics: ISA investing tips, Achieving your investment goals