Isa Allowances

By Author: Lecia Selbo
Total Articles: 49
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At the start of the new financial year in April the ISA allowance for all those under the age of 50 will change. These changes took place in October for those who were born before 5th April 1960. Recent research conducted by the National Savings and Investments group discovered that only 15% of individuals understand the upcoming changes to their ISAs, so here is a quick guide to the new rules.

ISAs are tax-free wrappers that protect the money invested in it from being taxed so all the interest that the account earns remains with you. Each year you can invest a certain amount into an ISA, and this is known as the ISA allowance.

At present for those born before 5th April 1960 the ISA allowance is ?10,200. For those born after 6th April 1960 it is ?7,200 and will rise to ?10,200 on the 5th April 2010.

Most people have heard of cash ISAs but these only cover half of your ISA allowance. At present for the under 50s only ?3,600 may be invested into an ISA in cash, you can choose to invest less than ?3,600 but no more.

The other half of the ISA, the stocks and shares ISA element is a little more flexible. ...
... Stocks and shares may make up all the outstanding amount of the allowance that is not made up in cash. So if you have invested ?200 in cash you can invest up to ?7,000 in stocks and shares under the current allowance.

Every UK resident is allowed one cash ISA account and one stocks and shares ISA account. You are able to transfer your ISA from one bank to another if there are better deals available but you may not open more than one account of each type.

Perhaps the most important thing to remember is that the ISA allowance is calculated by how much money you put in. So, for example, if you have invested ?1,500 in cash this year, you can invest another ?2,100. If you take out ?500, you can still only put in another ?2,100. The important thing is not the balance of the account, but the sum that you have invested. When the financial year turns over, you can then invest another amount, but any excess allowance from the previous year is wiped out. So if you only invest ?3,000 out of your ?3,600 cash allowance this year, next year you will only be able to invest the new ?5,100 amount, not ?5,100 plus the spare ?600 from the previous years allowance.

At present, interest rates are not particularly attractive, but that doesn''t mean that you shouldn''t invest any savings that you do have in an ISA. When interest rates recover, the more money that you have invested in your ISA the more interest you will earn tax-free. If you haven''t yet reached the limit of this year''s ISA allowance, it''s a good idea to put in as much money as you can before the financial year ends. If you have an ISA you should always try to make the most of it. Lecia Selbo opened a stocks and shares ISA with Legal