ISA allowance to increase annually

Piggy bank

The ISA allowance will rise each year in line with inflation, it was announced in today’s Budget.

In his last Budget before the general election, Chancellor Alistair Darling announced that the ISA limit, set to go up to £10,200 for all savers from 6 April, will be linked to rises in inflation from April 2011.

Based upon the Darling’s estimated inflation rate of 2% for the next year, this means the ISA limit will be £10,400 from 2011/12.

Many industry experts welcomed the decision.

Richard Saunders, chief executive of the Investment Management Association (IMA), says:  "The ISA is and should remain the key non-retirement savings vehicle for all. We therefore welcome the government's announcement that the limit will increase each year in line with inflation."

He adds that the IMA will shall continue to discuss with the government how it can build on the strength of the ISA brand and the simplification of the pensions landscape to create "a coherent savings scheme for all, providing instant access, limited access and retirement  incomes."

Rebecca O'Keeffe, head of investment for Interactive Investor, says: "19 million ISA investors will be delighted that from April 2011 ISA limits will be indexed in line with inflation."

She also applauds the government's proposal to consider allowing investors to put alternative investment market (AIM) shares into their ISA portfolios: "ISAs are an incredibly valuable tax benefit and additional Treasury comments that it is consulting on whether to allow AIM shares to be ISA eligible is very good news too."

However, other commentators are unsure if the increase go far enough.

John Richardson, head of advice policy at Towry Law, says: “To really encourage the savings culture, the [ISA] limits need to rise more substantially and, in real terms, faster than in line with inflation. “

ISAs were first introduced in 1999 but there have been no substantial increases to the amount of money you can stash away in an ISA.

However, in his Budget last year, Darling announced that the amount of money you can put into an ISA each year will increase from £7,200 to £10,200 from 6 April 2010.

For people age 50 or over, this new limit became available from 6 October 2009.

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