It was indeed good news for those saving in Individual Savings Account (ISAs) that an added £480 can be stashed into their ISAs for the 2011/2012 year. It will prove to be a welcomed boost for the UK’s ISA savers, especially those who transfer their savings to a higher paying provider every year. This is done in an attempt to make the most of the increased allowance for that year.
The annual ISA allowance for the tax year 2011/2011 is £10,680, which last year was £10,200, an increase of £480. This allowance is available from 6 April 2011 and will end on 5 April 2012. This allowance can be utilized by investing in Cash ISAs and Stocks and Shares ISAs. The cash ISA limit for the current tax year is £5,340, whereas the entire allowance of £10,680 can be invested in the Stocks and Shares ISAs. The overall combined limit is £10,680, therefore if £5,340 is invested in cash ISA, remaining £5,340 can be invested in the Stocks and Shares ISA.
| Cash ISA Allowance | Stocks & Shares ISA Allowance | Total ISA Allowance | |
| Year 2008/2009 & 2009/2010 | £3600 | £7200 | £7200 |
| Year 2010/2011 | £5150 | £10200 | £10200 |
| Year 2011/2012 | £5340 | £10680 | £10680 |
New ISA Allowance Guidelines
Government in the June 2010 budget announced that in future, the yearly ISA allowance will be tied up to the Retail Price Index (RPI). Going forward, ISA allowances will be decided based on the official RPI figures issued in September every year. Any increase therein will positively impact the ISA allowance for the next year. However, if the RPI for a year is negative, the ISA allowance for the next year will remain unaltered.
The RPI in September 2010 was 4.6%, which would have pushed the ISA allowance limit up by £469.20. However, to make it simpler and easily divisible by 12, the treasury decided to keep it an increase of £480 for the 2011/2012 tax year. Thus, this increase has accelerated the total ISA allowance from £10,220 to 10,680 for the year.
The newly subscribed money for the current tax year can only be held up in a single cash ISA and single stocks & shares ISA. However, the money from the previous years can be held in unlimited accounts. These savings are also transferable, in most cases, between several providers through the ISA transfer requests.
Government has also committed that the amount that can be saved in the ISAs will increase each year with the increase in inflation. However, despite this, the rate of interest offered by the bests of ISA providers falls short of the increase in the rate of inflation. This entails that despite saving in the highest paying ISAs; savers may lose out on their purchasing power and experience a decline in the value of their cost of living.
However, ISAs may still prove to be a great venue to save money year after year for most of the savers, and earn interest without any tax implications whatsoever.