History of UK ISAs

Last updated: 2026-05-17 · PlainISA

Predecessors: PEP and TESSA

Before the Individual Savings Account, the UK had two distinct tax-free wrappers: the Personal Equity Plan (PEP, launched 1986) and the Tax-Exempt Special Savings Account (TESSA, launched 1991). PEPs held investments and were popular with retail share-buyers; TESSAs held cash and offered a 5-year tax-free interest commitment. Both were closed to new subscribers in April 1999 when the ISA was introduced as a unified wrapper.

Existing PEP and TESSA balances were converted into the new ISA framework over a transition period that lasted into the early 2000s. The 1999 launch was a Labour government initiative aimed at simplifying tax-free saving and encouraging broader participation than the share-investor-dominated PEP.

1999-2014: gradual cap increases

The original 1999 ISA allowance was £7,000 split between Cash (£3,000) and Stocks & Shares (£4,000 if no Cash; £3,000 if Cash subscribed). The Cash sub-limit was a notable constraint and was raised in stages over the next 15 years.

Key cap milestones: 2008-09 the allowance rose to £7,200; 2010-11 to £10,200; 2014-15 the radical simplification, the New ISA (NISA) introduced equal £15,000 caps and full flexibility to mix Cash and S&S within a single £15,000 allowance.

2016: Personal Savings Allowance and Innovative Finance ISA

The April 2016 reforms introduced two major changes. The Personal Savings Allowance gave basic-rate taxpayers £1,000 of tax-free bank interest outside any ISA wrapper (£500 for higher-rate, £0 for additional-rate). This made the Cash ISA materially less attractive for the median saver.

The same Finance Act introduced the Innovative Finance ISA, allowing peer-to-peer loans and crowdfunded debentures to sit inside the wrapper. The IFISA was the first new ISA type since the original framework and reflected post-2008 enthusiasm for alternative finance.

2017: Lifetime ISA launch + £20,000 cap

April 2017 brought two parallel changes. The annual allowance was raised to its current £20,000 level. The Lifetime ISA launched with the 25% government bonus, the £4,000 sub-limit, and the dual-purpose structure (first-home or retirement). The LISA replaced the Help to Buy ISA for new subscribers, the HTB ISA had launched in 2015 but was closed to new accounts on 30 November 2019.

The £20,000 cap has held since 2017 without inflation adjustment, the real-terms value of the allowance has eroded by approximately 25-30% over the 2017-2025 period depending on the inflation measure used.

2024: multiple-ISA rule + reporting modernisation

The 2024 Spring Budget announced two ISA changes effective from 6 April 2024. First, the long-standing "one ISA of each type per tax year" rule was relaxed, savers can now subscribe to multiple Cash ISAs (or S&S ISAs, or IFISAs) within a single year, with the £20,000 overall cap unchanged. Second, ISA providers must report subscription data to HMRC at greater frequency, enabling near-real-time tracking of cross-provider compliance with the annual cap.

The 2024 rule change was the most significant ISA reform since the 2017 LISA introduction. Industry analysts expect it to reshape the Cash ISA market by enabling rate-shopping within the year, putting pressure on providers to offer competitive rates throughout the cycle rather than relying on April promotional pricing.

Looking forward: open questions

Several policy questions remain open as of 2025-26. Whether the £20,000 cap will be raised to restore real-terms value remains under industry discussion. Whether the LISA £450,000 property cap will be regionalised or increased remains contested. Whether a new "Great British ISA" focused on UK equities (announced in the 2024 Spring Budget but not yet legislated) will materialise is uncertain.