Inland Revenue 4 2 July 1997 A NEW INDIVIDUAL SAVINGS ACCOUNT The Chancellor of the Exchequer announced today that the Government would be developing plans for a new individual savings account. This will build upon the experience of Tax-exempt Special Savings Accounts (TESSAs) and Personal Equity Plans (PEPs). It will extend the principle of TESSAs and PEPs to encourage people, through tax reliefs, to raise the level of their long term savings. The new scheme will have a particular emphasis on encouraging those on low incomes to save. The Government sees the individual savings account as an exciting and important opportunity to shape savings for everyone, not just existing TESSA and PEP investors, into the next century, and wishes to have the fullest possible consultation on it. The aim is that, following approval by Parliament, the new scheme should be in place for 1999. DETAILS 1.Following the reform of company taxation announced today (see Inland Revenue Press Release 2), tax credits will continue to be paid to individuals as before until 5 April 1999 in anticipation of the introduction of a new individual savings account. 2.Individuals, including PEP investors, will have the opportunity in 1999 to invest in the new individual saving account, which will provide a tax favoured environment for savings. 3.In building upon TESSAs and PEPs with the new individual savings account, the Government will wish to refocus and simplify the existing rules. It will also want to look at the possibility of bringing together a range of savings vehicles into the new scheme, with tax reliefs, up to an overall investment limit. 4.The Government will wish to encourage people to leave their savings in the account on a long term basis, building on the 5 year period in the TESSA scheme. 5.The Government will also wish to give particular encouragement to those who do not save at the moment, especially those on low incomes. 6.The Inland Revenue will have preliminary informal meetings with interested parties - including the TESSA and PEP providers - to discuss the new individual savings account. 7.The Government will issue a consultative document later in the year, with a view to announcing specific proposals towards mid 1998. Draft legislation will be published following further consultation with providers on the operation of the scheme. NOTES FOR EDITORS 1.TESSAs were introduced on 1 January 1991. They are special accounts - usually with banks and building societies - in which savers aged 18 or over can invest up to 9,000 Pounds over 5 years, subject to annual limits. Interest is tax free. 2.There are about 4 1/2 million TESSA savers and the tax relief is estimated to cost 450 million Pounds in 1997-98. 3.PEPs were introduced on 1 January 1987. Savers may subscribe up to 6,000 Pounds in a general PEP each year which invests in certain shares and securities, and in authorised unit and investment trusts which meet certain investment criteria. In addition, they may subscribe up to 3,000 Pounds to a single company PEP investing in the shares of one company. Income and capital gains are tax free. 4.There are about 2 1/2 million PEP savers and the tax relief is estimated to cost 800 million Pounds in 1997/98. 5.Further information about PEPs and TESSAs can be found in the leaflets IR89 Personal Equity Plans (PEPs): A guide for investors and IR114 TESSA: Tax free interest for taxpayers available from local Tax Enquiry Centres and Tax Offices. Press enquiries to: 0171 438 6692/6706/7327