Tax-exempt special savings account

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In the UK, the tax-exempt special savings account (TESSA) was one of a number of tax-free savings accounts. The TESSA was announced by John Major in his only budget as Chancellor of the Exchequer in 1990 (the "budget for savings") and at first had a five-year lifespan.^[1] The TESSA was intended to be a low-risk complement to the personal equity plan (PEP) which would be attractive to a wider range of savers. The accounts were replaced by Individual Savings Accounts in 1999.

Eligibility

An individual aged 18 or over was able to open a TESSA with a bank,

of the tax relief.

Evolution

'Follow-on' TESSAs were introduced in 1995 to permit all of the capital (but not the tax-free interest) from an original TESSA to be 'rolled over' into a new TESSA. Other than permitting all of the capital from the original account to be invested in the first year, which could easily exceed the usual £3,000 first-year limit, a 'follow-on' TESSA was subject to the same conditions as any other TESSA.

Phasing out

TESSAs were replaced from 1999 by

(ISAs). The final TESSAs matured on 5 April 2004, and the original capital (but not the tax-free interest) could again be 'rolled over' into a new income-tax-free investment, a TESSA-only ISA (TOISA). This was a form of cash ISA that could be opened using either capital that was originally invested in a TESSA and that had not been withdrawn, or with funds transferred from another TOISA.

From 6 April 2007 there was no practical difference between TOISAs and cash ISAs, and transfers into cash ISAs were permitted. On 5 April 2008, TOISAs ceased being legally distinct and are now interchangeable with cash ISAs.

References