Top-up Tuesday arrives
Older savers will have seen their tax-efficient ISA allowance increase today by £3,000 as the new rules go live.
People born on or before 6 April 1960 will now be able to invest a total of £10,200 in an ISA, up from £7,200. Half of this (£5,200) can be held in a cash ISA, up from the previous cash allowance of £3,600.
Younger savers will see their allowance increase at the start of the next tax year.
On the cash ISA side, most providers are well prepared for the increase, despite concerns that some savers wouldn’t be able to top up existing fixed-rate ISA bonds. However, according to David Black, head of banking at Defaqto, Egg is the only provider that won’t be allowing eligible savers to increase their fixed-rate ISA balances.
Most other providers will accept the additional £1,500 allowance into new and existing ISAs, including fixed-rate products.
“We have seen very high ISA inflows this year and are very aware that tax-free savings are extremely important to our customers,” says Kim Rebecchi, director of sales and marketing at Leeds Building Society. “This is why we have taken the decision to accept this additional allowance and to extend our competitive range.”
On the stocks and shares side, brokers such as Interactive Investor as well as investment houses including Fidelity International, F&C and TD Waterhouse are also ready for 'top-up Tuesday' - and are urging customers to stash those extra thousands of pounds away from the taxman.
Fidelity International says the government already gives away £2 billion by providing the tax-free vehicles, and with the increased ISA allowance, it is estimated it will give away a further £85 million.
“It's great to think that all that money is going back into the investor's pocket rather than the taxman's,” says Paul Kennedy, director of tax wrapper and trust planning at Fidelity International.
Jason Hollands, director of F&C Investments, adds: “In an environment of both economic uncertainty and with the prospect of political change, it is impossible to say for how long investors will have the benefit of this extra ISA allowance or indeed other tax-efficient allowances such as the child trust fund.
“So this extension to the ISA allowance should be grabbed with both hands, as it allows investors to shelter more of their hard-earned cash from both income and capital gains tax.”
However, he also says that it's a shame the extra allowance didn't come in earlier this year as the stockmarket rally seen since March would have provided another welcome boost to investors' assets.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.