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If you pay tax in the UK, then you are entitled to benefit from the government-backed Individual Savings Account (ISA) scheme, which allows you to save or invest a certain amount of money each year without having to pay any tax on the proceeds. This leads to higher overall returns, which means more money for you. However, there are several restrictions attached to the scheme, mostly to do with how much money you can put into an ISA and when you can do so.

There are two main types of ISA available, known as stocks and shares ISAs and cash ISAs. You can put up to £10,200 per tax year (which runs from April 1 to March 31) into ISAs of any sort. Out of this, you can put up to £5,100 in a cash ISA, and up to £10,200 in a stocks and shares ISA. If you were to invest the full cash ISA allowance, you would only be allowed to invest £5,100 in a stocks and shares ISA, as the total amount invested must not exceed £10,200.

A cash ISA is like a standard savings account, except for the fact that you do not have to pay tax on the interest. There are as many types of cash ISA as there are standard savings accounts, and banks and building societies often offer ISA and non-ISA savings accounts side by side that have the same terms and conditions, so that you can easily compare the difference that the tax break makes. For example, you can get regular savings ISAs, which require you to put in a certain amount of money each month in order to reap the full benefits of the account, or notice savings ISAs, which require you to give a certain period of notice (usually a multiple of thirty days) before you withdraw funds.

The stocks and shares ISA is essentially similar to the cash ISA, except for the fact that the money must be invested in the stock market rather than a savings account. The most popular type of stocks and shares ISA is the pooled investment fund, in which the money of several investors is combined and invested on their behalf by a fund manager. Popular types of pooled funds include corporate bond funds and unit trusts. For more information about the ISA scheme, go to the Legal & General website.