The ISA limit will increase to £11,280 next April, due to the high inflation figures announced yesterday.
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.
Cash ISAs vs stocks and shares ISAs
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.
Like adult ISAs, they are tax-efficient (the only tax payable is 10% dividend tax on shares), and there are two types: cash and stocks and shares.
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