Due to the financial crisis, government spending and borrowing have reached record heights. In fact, some commentators expect that we will not know just how bad a legacy this decline in public finances will have until next year, 2010.
These record levels of spending and borrowing mean that tax rises over the next few years are expected, as the Government replenishes dwindled public finances. This likelihood means that savers are currently investigating tax-breaks like ISAs.
What is an ISA and How Much Can I Save or Invest?
An ISA (Individual Savings Account) is one of the most accessible methods of saving, and appeals to many savers and investors because they do not pay capital gains tax, or any further tax on income, on the savings or investments within the ISA.
What’s more; the amount each person is allowed to save or invest has recently increased for the over 50s.
On 6 October 2009 the ISA allowance for anyone whose 50th birthday falls on or before 5th April 2010 rose to £10,200 (with up to £5,100 in a Cash ISA).
For the 2009/2010 tax year the allowance for those not yet 50 remains unchanged at £7,200. However, from April 6th 2010 this will increase to £10,200 for those aged 18 years or above.
Differences Between a Cash ISA and a Stocks & Shares ISA?
For the more cautious, the most important difference between a Cash ISA and a Stocks and Shares ISA is that the capital value of a Cash ISA is guaranteed not to fall, and that the savings can be immediately accessed.
In a sense, there is little difference between a Cash ISA and a conventional savings account, except of course that the interest on a Cash ISA is tax free. Just as with savings accounts, the interest rates on Cash ISAs vary, so shop around to find the best deal. Be aware that the rates sometimes quoted may only be introductory or provisional, and once removed they leave a less appealing ongoing rate.
Stocks and Shares ISAs offer the potential for higher returns than Cash ISAs but also the risk that your investments can fall in value as well as rise. They work by allowing the investor to hold investments in cash, gilts, investment grade bonds, high risk high yield bonds and UK shares, either directly or by holding funds that invest in these asset classes.
Do I Have to Invest A Lump Sum?
No. You can invest in an ISA either through a lump sum or by making monthly contributions. Some people invest a lump sum, and then add monthly contributions on top of this, regular contributions can be made from as little as £50 a month. In this sense ISAs allow a high level of flexibility, and an affordable way to invest.
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