ISAs - Stay One Step Ahead of the Taxman

Yesterday saw start of the new tax year and with it another clean slate for savers. However, while this news may not grab you as particularly exciting, for your wallet it could be a good reason to party.

Yes, 6th April 2008 finally saw the government update ISA regulations so that we can now save more of our hard earned cash away from the prying eyes of the taxman.

The biggest change is an increase in the annual tax-free savings allowance available to all UK residents over the age of 16. This now sits at £7,200 (up from £7,000 last year) meaning more of your savings can earn interest free from tax.

However, perhaps more importantly, the Mini/Maxi distinction that caused so much confusion has now been removed leaving just two straight forward tax free investment options, cash and stocks and shares.

You can now invest up to £3,600 in a Cash ISA each tax year (running between 6th April one year to 5th April the next) with any remainder up to the £7,200 maximum invested tax free as stocks and shares, it’s really that simple.

As for your previous years allowances, Mini cash ISAs, TESSA-only ISAs and the cash components of Maxi ISAs will now all be known as Cash ISAs, while the stocks and shares components of both Mini and Maxi ISAs and PEPs will be known as Stocks and Shares ISAs.

For added flexibility the way you can move money between your ISAs has also changed. Under the old scheme, funds held under the ISA wrapper could only be transferred on a like for like basis (i.e. cash account to cash account and stocks and shares to stocks and shares) without losing their tax free status.

However, it is now possible to transfer cash based ISA investments from both your current and previous year’s allowances into stocks and shares, although unfortunately not the other way around.

If you do decide to transfer any subscriptions you have made as cash during this financial year, you will need to move the whole amount invested so far, although this will then free up your cash allowance again up to the £3,600 maximum (depending on how much you have invested in stocks and shares).

While the above changes mean that you can see more of your savings get better returns the best way to get one over on the tax man is by saving as much as you can as soon as you can each tax year.