Savers soon to enjoy higher ISA threshold

15 February 2010

Changes in the regulations mean that the total amount that people can save in an ISA account in a tax year is rising as from 6 April 2010.

Under the current rules, the most that many individuals can invest is up to £7,200 a year in an ISA account.

However, as from 6 April 2010, that upper threshold is due to climb to £10,200.

The over-50s – or those born on or before 5 April 1960 – have been able to take advantage of the new limit since last October. But soon other savers will be able to make use of the improved limits.

Although the new limits mean that savers can pay more into their ISAs, the rules still impose separate amounts for cash and for stocks and shares ISAs. Once the upper limit has increased, then the maximum that can be invested in a cash ISA rises to £5,100 (up from £3,600). The remainder of the full allowance (£5,100) can go into a stocks and shares ISA. Or the full sum can be paid into a stocks and shares ISA.

Savers are allowed only one cash and one stocks and shares ISA in any tax year.

ISAs first appeared on the scene in April 1999 as a tax-free incentive to save and as a replacement for Tessas and Peps.

Attractive option

A new survey has found that more people – especially the young and women – have been turning to ISAs since their introduction.

A report by the Halifax indicates that the proportion of women who saved through ISAs increased by 52 per cent during the first seven years of the account’s existence. Data also suggests that ISAs are an increasingly popular way among the young of setting aside funds for a mortgage deposit.

The research makes use of information provided by the Bank of England, HM Revenue and Customs and the Department for Work and Pensions.

Almost two in five households in the UK (37 per cent) have an ISA account. The total increased by 53 per cent in the nine years to March 2009, the equivalent of 14.2 million savers.

There has, however, been a marked decline in the average amount paid into each account. In 1999/2000, that figure stood at £3,064, but by 2008/09 it was down to £2,636. One reason for the fall has been the effects of the credit crunch and the recession.

Over the course of the first seven years of ISA accounts, more men than women joined the scheme. But the proportion of women opening ISAs has been gathering pace. Over that same period, the number of women signing up to ISAs climbed by 52 per cent compared with just 35 per cent among men.

Younger people have also tended to find ISAs attractive. The under 25s, perhaps keen to save for a mortgage deposit, registered the biggest demographic increase in ISA savers over the nine-year period, rising by 85 per cent.

First-time homebuyers in the 25-34 age bracket, hobbled by mortgage repayments, represent the smallest group among ISA savers at just 24 per cent.

While the south east of England still lays claim to the highest national proportion of ISA savers, it is being caught by Scotland where numbers have been growing at their fastest rate.

Cash ISAs are the most popular. It is estimated that cash ISAs outnumber equity ISAs by about a margin of four to one.