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Change To ISA Rules Is Good News For Savers

Since they were first introduced in 1999, Individual Savings Accounts (ISAs) have proved a very popular way for millions of people to save money without having to pay tax.

At a time where the base interest rate is at a record low level, the tax-free status of ISAs can make a significant difference to the amount your money potentially earns.

The present ISA regime allows you to deposit up to £7,200 into an ISA in a given tax year. Up to £3,600 of this sum can be in cash, and up to the same sum in stocks and shares. Monies can be deposited either in one lump sum, or through the year, whenever savers have it available (depending on the terms of their ISA plan).  If the cash element is not used, the full £7,200 can be held in the stocks and shares element.

Within the stocks and shares component, you can hold investments such as individual stocks and shares, investment products such as authorised unit trusts, open-ended investment companies (OEICs), investment trusts and life insurance products as well as gilts and corporate bonds. The cash component permits you to hold bank and building society deposit accounts, National Savings and Investment products and investment or insurance products which aim to produce a ‘cash-like’ return, such as money market funds.

The regulations governing ISAs are set to change following this years Budget and the changes are going to make ISAs an even more popular savings vehicle.

From October 6 this year, the ISA limit for savers aged 50 and over will be increased to £10,200. Savers under 50 will be eligible for this new allowance from the start of the 2010/11 tax year and again up to £5,100 can be in cash and the same in the stocks and shares component or the full £10,200 can be invested into the stocks and shares element.

ISAs are already a popular way for older people to save in the run-up to or during their retirement – up to three-quarters of ISA accounts are held by people who fall into this higher age bracket, and research from the Newcastle Building Society shows 30% of savers say they will be more likely to choose to save via an ISA when the limits increase.

It is also possible to transfer existing ISAs between different providers and to transfer existing cash based ISAs to investment based ISAs but not the other way round.

Please note ISAs are free from income tax and capital gains tax other than in relation to the non-reclaimable 10% tax credit on dividend income.

Please contact HWB to review your ISA investments.

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