Budget 2009 – ISA Allowance Increased – from 6th October 2009

In his Budget speech on the afternoon of 22nd April 2009, Chancellor of the Exchequer, Alistair Darling, announced that with the maximum amount which can be invested in a tax-efficient ISA will rise from £7,200 to £10,200.

(Ed. – This rise is long over due, with the only previous rise, since ISA’s were introduced in 1999, being  from £7,000 to £7,200. Had the ISA allowance increased in line with average earnings inflation since 1999 then today the ISA allowance should be in the order of £10,500).

New ISA Allowance Limits

Investors will be free to choose whether to invest the full £10,200 into the Stocks and Shares element or to place up to £5,100 into a Cash ISA, with the remainder of the allowance being invested in a Stocks and Shares ISA.

When do the new ISA Allowance Limits Start?

This change in ISA allowance will see the total amount which can be invested in a tax year increase to £10,200 from 6th October 2009 for those aged over 50 with the rest of us being entitled to the additional allowance from 6th April 2010 – effectively 12 months to wait for those under 50.

In reality though the increase in allowance, although welcome, will see only a small increase in the amount of tax saved by UK investors in Cash ISA’s given the very low level of current interest rates.

For example – for a Cash ISA investor this means that an additional £1,500 can now be invested in a Cash ISA.

With the average Cash ISA paying in the region of 2.5% -3.0% gross, the actual tax saved will be between £7.50 and £9.00 per annum under current interest rates.

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