What you need to know

After two consecutive years of decline, the value of ISA contributions grew by 13% during the 2017/18 tax year. This growth was primarily driven by stocks and shares ISAs, which have become more popular as a result of the low interest rates for cash products.

When it comes to the new ISA products that have become available during recent years, Mintel research indicates that the Lifetime ISA has the most favourable long-term prospects despite initially having faced heavy criticism from industry commentators. In contrast, the future of the innovative finance ISA is much less clear. During the past year the FCA has sent out several warnings cautioning consumers about the high-risk nature of underlying assets like peer-to-peer investments and is now considering what types of regulatory changes might be necessary.

This Report explores the current state of the ISA market. In addition to detailing the size of each market segment using the most recent available data, it identifies key market drivers as well as an up-to-date snapshot of the regulatory environment. The Report also includes market share data as well as information on the recent activities of ISA providers. Mintel’s exclusive consumer research provides insights into savings and investment product ownership, recent ISA savings activity and key reasons for opening an ISA, as well as attitudes and behaviour towards ISAs.

Products covered in this Report

For the purposes of this Report, Mintel has used the following definitions:

  • Individual savings accounts (ISAs) are a tax-free ‘wrapper’ that can hold a range of investments and cash, and are exempt from income and capital gains tax. ISAs have an annual subscription limit, which means savers can only invest up to a specified amount each year. Up to £20,000 can be invested into an ISA in the current tax year (2018/19). The subscription limit applies to funds held across all different types of ISAs, however, money can be moved from stocks and shares to cash ISAs, and vice versa.

The ISA wrapper applies to both cash savings and stocks and shares investments:

  • Cash ISAs are cash savings products. There are many varieties of cash ISA. Some will offer instant access to money with no penalty, while others will have restrictions, such as a fixed term, or require notice to be given before money can be withdrawn. If a withdrawal is made within a fixed period this may result in a penalty or loss of interest.

  • Stocks and shares ISAs allow individuals to invest in a wide range of investments, including unit trusts, OEICs, ETFs, investment trusts and corporate and government bonds. They can also wrap individual stocks and shares listed on a recognised stock exchange in a self-select ISA. Investments held in an ISA are exempt from capital gains tax, while dividends attract lower tax than on shares held outside an ISA.

A number of goal-specific and alternative investment ISA products have recently been launched or announced:

  • Innovative finance ISAs offer savers a tax-free wrapper for any savings income earned from peer-to-peer investments. As of 1 November, 2016, the innovative finance ISA also includes earnings from crowd bonds. Investments made using an innovative finance ISA count towards an individual’s annual subscription limit.

  • Help to Buy ISAs are a form of cash ISA specifically available for the purpose of saving towards a deposit on a first home. Savers qualify for a government bonus of 25% on all contributions to the ISA. Contributions count towards an individual’s overall ISA subscription limit. New Help to Buy ISA will only be available until 30 November 2019, however, contributions will be accepted until 30 November 2029.

  • Lifetime ISAs are a new product designed to facilitate saving for a deposit on a first home and for retirement. They became available to savers in April 2017. Going forward, these are set to replace the Help to Buy ISA, giving savers the same 25% government bonus on contributions. The ISA will only be available to 18-40 year olds. However, people can save in their Lifetime ISA and receive the 25% bonus until their 50th birthday. People can freely access the funds in their ISA after their 60th birthday, to help fund retirement, however, withdrawals are permitted before this to use as a deposit on a first home.

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