Individual Savings Accounts Use your Individual Savings Account (ISA) allowance of each year. For 2010/11 the limit is £10,200 (of which up to £5,100 can be invested in cash). You can invest in cash, insurance, stocks and shares, etc. up to the limit each year and all proceeds are free from personal taxation. This means that if you invest £10,000 each year for ten years then you will have a pot of £100,000 plus accumulated interest which is generating tax free returns. Over a number of years this can be a viable alternative to a pension fund as proceeds can be taken at any time and there is no requirement to wait for retirement age or to take an annuity. Individual Savings Account Example John invests £7,000 into shares using his ISA. After three years, this has grown to £14,000, and he decides to cash it in. He has used his annual capital gains tax allowance elsewhere. The amount of tax he pays on the gain is NIL. However, if he had made the investment outside an ISA, purchasing shares in his own name, he would pay capital gains tax on the gain of £7,000. If the disposal is made after 23 June 2010 and he is a higher rate taxpayer, he would face a capital gains tax bill of £1960 (£7,000 @ 28%). These ISAs are also useful for the retention of income within the fund as this is received effectively tax free. This means that the fund can grow at a faster rate than if the funds were held outside of an ISA, where potentially 40% or 50% of the investment return would be taxed.