The amount of money you can protect from the taxman is rising – but when can you take advantage, and how do you do it? The most you can currently put in an Individual Savings Account (Isa) is £7,200. This allowance can be split between stocks and shares and cash, with a maximum of £3,600 in cash. From 6 April 2010 the limit rises to £10,200, with up to £5,100 in cash.
But in an attempt to appease pensioners whose income has suffered due to low interest rates, Alistair Darling has allowed older savers to take advantage of the new limits six months early. So if you will be 50 or over on 5 April 2010, you can top up your Isa from next Tuesday (6 October). Investments in an Isa are protected from capital-gains tax, while you are not liable to income tax on any interest paid, so it’s certainly worth taking advantage. So how do you do it?
If you have already opened an Isa this tax year, then you can only top up the one you have. You are not allowed to open more than one Isa a year. But not all providers are allowing top ups, as it’s very costly for banks to implement such a large change. Barclays, Britannia, First Direct, HSBC, Lloyds, Natwest, Yorkshire and Chelsea have all said existing customers will be able to top up, but others have been non-committal.
For those who took out a variable rate cash Isa the top up should be simple, as long as your provider allows it. But those who opted for a fixed-rate Isa could face a more complicated process. Fixed-rate offers usually close after a period of time, after which you can’t add more money. In this case, many providers are allowing existing fixed-rate Isa customers to add a one-off lump sum. But others are instead allowing customers to have “umbrella cash Isas”, where they can open a second Isa for their top-up cash. You must check with your provider as to what they are offering, as unless it’s one of these one-off “umbrella Isa”, you can’t open more than one Isa a year.
An alternative is to transfer your Isa to an account that does allow top ups. Bear in mind that if you have a fixed-rate Isa there may be penalties for taking your money out early. The best fixed-rate Isa available now is Leeds Building Society’s five-year fixed-rate Isa issue 15, which pays 4.6% and allows further deposits. Withdrawals are allowed too. You can take out up to 25% penalty free, but after that you will incur a penalty of 180 days loss of interest.
It may seem topping up is complex, but it’s worth it. A 50-year-old who takes full advantage of the £5,100 cash Isa allowance every year until they’re 65 could build up £104,000 in savings, including £27,700 in interest, says uSwitch.com in The Guardian. The allowance is per person so couples could protect up to £10,200 cash from tax every year, or £20,400 in stocks and shares.