MORE TAX FREE SAVING
OK it will save you less than £5. But if you don’t care about having an extra
fiver try taking one out of your purse and tearing it in half. Difficult isn’t
it? So no sniffing at only saving a fiver! And in the future it will save you at
least double that every year into the future.
I am talking about cash ISAs. From 6 October the limit for putting money into a
cash ISA will rise from £3,600 to £5,100. When it was announced in the Budget in
April this £1,500 increase was going to be only for the over 50s. But in a late
change the Revenue announced that it would also apply to anyone who reached 50
this tax year. So anyone born before 6 April 2010 can take advantage of it from
6 October. In other words, if you are 49½ before that date you can join the
party.
Under ISA rules you are only allowed to open one cash ISA in each tax year. So
strictly speaking the extra £1500 should be used to top up an existing cash ISA.
But that can be difficult with fixed rate ISAs. They normally do not allow extra
money to be added. Some banks and building societies have changed their rules to
allow it. Others have got round it by letting you open a second ISA ‘alongside’
the first one. Strictly speaking that second ISA is invalid. But the Revenue has
said that as long as the overall limit of £5,100 is not breached the ISA will be
what it calls ‘repairable’. And no action is taken against a holder of an
invalid but repairable ISA. That pragmatic rule is adopted even if the second
ISA is not with the same provider as an existing ISA.
If you want instant access to your ISA money then 3% is about the best rate you
can get. If you put the full £1500 in an ISA at 3% for the six months of this
tax year it will earn £22.50 in interest. And the value of that interest being
tax free is just £4.50 – or £9 if you pay higher rate tax. But the money will
grow tax free next year – and into the future – so it is well worth doing.
If you have a shares ISA then the overall limit rises from £7,200 to £10,200.
Half of that money can be in cash.
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