Increased ISA limits are here

Sunday, 11th October 2009 21:29 - by Resident IFA

From October 6th 2009, the over-50’s can save or invest more into Individual Savings Accounts (ISA). This applies to the rest of us from April 6th 2010. The overall limit is increasing from £7,200 to £10,200. Before, you could contribute £3,600 into both the Cash and Invested (‘Stocks & Shares’) elements. Now...surprise, surprise...you can invest £5,100 into each. If you are the type of individual who likes a bit of risk, the whole £10,200 can be invested into shares, managed funds, Exchange Traded Funds, and the like. To re-cap, ISAs are free from Capital Gains Tax (CGT) and Income Tax on their growth and distributions. I have heard that all is not quite plain-sailing for the over 50’s, however. Apparently, some already in accounts are having trouble topping them up, or are being given second accounts with inferior interest rates. Putting this aside, the extra Income (Savings) Tax benefit the new allowances give – into a Cash ISA paying 5% (wishful thinking), compared to the same standard savings account – is only £15 per annum. Not much of a head-turner, but good when added to the £36 per annum benefit from the original £3,600...and if you have the means to contribute year after year. Perhaps more compelling is the effect of the CGT concession. If you find a decent investment fund manager or a ‘multi-bagger’ share, an ISA can be a great tool. Let’s say you invest £10,000 into a share that quadruples in value, this will save you approximately £3,600 in tax (encashment value minus initial investment minus CGT allowance, x18% of the resulting figure as tax). I read an article (no recollection of where) that looked at the premise of ISAs being re-based each year since launch in line with inflation. So, we are now at £10,200...not even up to the £10,500 the article suggests the ISA allowance would now stand at. I suppose we shouldn’t complain, being ‘thankful for small mercies’ instead. Until next time...