ISA limit to rise to £11,280
The Office for National Statistics yesterday published September's inflation figures, with the Consumer Prices Index (CPI) hitting a record 5.2%. As the ISA limit is linked to the previous September's CPI figure, the annual allowance will rise from £10,680 to £11,280 at the start of the next tax year.
The full £11,280 can be invested in a stocks and shares ISA, and up to half of this (£5,640) can be saved in a cash ISA.
September's CPI figure is also key in setting other allowances, such as the basic state pension, jobseekers' allowance, inheritance tax allowance and capital gains tax allowance. Changes to these allowance have yet to be announced by the Treasury.
According to HR consultancy Towers Watson, the full weekly basic state pension for a single pensioner is likely to rise by £5.30 to £107.45 from April 2012 under the government's "triple guarantee". The guarantee means that the state pension will increasing with earnings, CPI inflation or 2.5%, whichever is highest.
Junior ISAs coming
On 1 November Junior ISAs (JISAs) will become available, with a limit of £3,600 for each eligible child per year. The Treasury announced today that to ensure that children with a child trust fund (CTF) are not disadvantaged, the current £1,200 CTF savings limit will treble to £3,600 from 1 November, aligning the CTF limit with the new JISA limit.
Both JISAs and CTFs will be index linked (linked to CPI from the previous September) from April 2013. A Treasury spokesman says: "There will be no change in April 2012 since this is too soon after the introduction of new limits in November 2011."
JISAs are available to children born on or after 3 January 2011, any children under 18 born before September 2002 and any children who don't already have a CTF.
For more details on JISAs and the companies which will be offering them next month, don't miss the November issue of Money Observer, out in shops on 27 October.
This article was written for our sister website Money Observer
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
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.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).
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.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).