ISAs: a complete tax shelter

An ISA is a complete shelter, not a discount. Interest, dividends and capital gains earned inside it are entirely free of Income Tax and Capital Gains Tax, and none of it needs to be reported on a tax return. Because it's outside the Income Tax and CGT systems altogether, ISA income and gains don't count toward the personal savings allowance, the dividend allowance, or the annual exempt amount either — those allowances are only used up by unwrapped investments. The shelter cuts both ways, though: losses on investments held inside an ISA can't be set against gains made outside it. On death, the ISA doesn't lose its tax-exempt status immediately — it can carry on sheltering income and gains during the administration of the estate, and a surviving spouse or civil partner can claim an additional permitted subscription equal to its value, on top of their own allowance. Many ISAs are also flexible, meaning money withdrawn during the tax year can be paid back in later that same year without using up the subscription limit again — though that's a feature the provider has to offer, not a universal ISA right.