An announcement in the 2009 Budget means that those over 50 will see their ISA allowances increase on 6th October, 2009 - we give you all the details.
In the 2009 Budget the Chancellor announced that the ISA allowance is set to increase, on 6th October, 2009 for those over 50 and on 6th April, 2010 for everyone else. We explain the changes.
What will change?
Prior to 6th October, 2009 the annual ISA allowance for all savers was £7,200; £3,600 of which could be saved as cash. However, this has now increased for those over 50 to a total of £10,200; £5,100 of which can be saved as cash.
This means that if you are over 50 years old you will now be able to save an extra £1,500 in a cash ISA and up to £10,200 in an investment ISA (less any amount you contribute to a cash ISA per tax year).
As any interest earned on money saved in an ISA is tax-free, this means that those over 50 can now save up to £5,100 in cash each tax year without the 20% tax deduction on interest (40% for higher-rate taxpayers). As such you will be able to keep more of your money away from the taxman from October 2009 onwards.
What about those under 50?
If you are under 50 you will also see your ISA limit increase, but not until the new tax year begins on the 6th April, 2010. At this point you will be able to save a total of £10,200 tax-free, £5,100 of which can be saved as cash.
If you are due to turn 50 before the end of this tax year (5th April, 2010), your ISA allowance will increase on the day that you turn 50. For example if your 50th birthday is on January 22nd, 2010, you’ll be able to invest up to £10,200 (£5,100 in cash) as of January 22nd, 2010.
What if I’ve already opened an ISA this year?
If you are over 50 and have already contributed to an ISA this tax year, you will be able to increase your ISA savings and investments up to the new £10,200 limit. However, as you can only contribute to one cash ISA and one investment ISA per tax year, you will only be able to top up your current ISA rather than open a new one.
It’s also worth noting that if your cash ISA is a fixed-rate account you may not be able to top it up to the new limit because of restrictions on access – for example, you may only be able to make one deposit during the fixed term. Some providers may permit extra deposits to reflect the increase to the ISA limit, but not all, so this is something worth checking with your ISA provider.
It may also be worth checking interest rates with your cash ISA provider. Some will pay the standard interest rate on any amount you top up your ISA with, whereas others may pay a lower rate on this additional contribution, so this is worth looking into. However it is possible to transfer your cash ISA to a more competitive home if you wish.
