For 2013/14 the limit is £11,520 (of which up to £5,760 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. Investing at the start of each year maximises the tax-free return.
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 an ISA where potentially 20%, 40% or 45% of the investment return would be taxed.
Using an ISA to invest £10,000 each year for ten years will provide 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.
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