By Frances Robinson, of the Cumberland Building Society

Last updated 09:26, Monday, 31 March 2008

• Vist the Cumberland Building Society website

Popular savings: In the 2007 budget the Government announced a number of changes to ISAs intended to simplify them

Saving for the future is a popular topic throughout the year. As the end of the tax year approaches on April 5, the focus is often on one particular type of savings account; the Individual Savings Account (ISA). 

ISAs were introduced in April 1999 and replaced TESSAs (Tax Exempt Savings Accounts) and PEPs (Personal Equity Plans). The idea behind the ISA was to bring tax-free savings opportunities to a broader range of the population.

Since then ISAs have become an extremely popular method of saving and the overall amounts invested in them have increased sevenfold since 2000.

In the 2007 budget the Government announced a number of changes to ISAs which come into effect from April 6 and are intended to simplify ISAs and provide more certainty for investors. The main changes will be:

• ISAs will be available indefinitely; they were previously only guaranteed until the 2009/10 tax year.
• Some of the terms which have become familiar, or perhaps caused confusion, will no longer be used. These include the terms mini ISAs, maxi ISAs and TESSA-only ISAs
• There will only be two types of ISA – cash ISAs and stocks and shares ISAs
• TESSA-only ISAs will become cash ISAs
• PEPs will become stocks and shares ISAs

In each tax year, every UK resident aged 18 and over will be able to save up to £7,200 in ISAs (up from £7,000).

Up to £3,600 of that allowance can be saved in a cash ISA with one provider (up from £3,000). The remainder of the £7,200 can be invested in a stocks and shares ISA with either the same or another provider.

For example – if Mr Smith saves £2,000 in a cash ISA, he could also save up to £5,200 in a stocks and shares ISA in the same tax year.

In each tax year every UK resident aged 16 and over will be able to save up to £3,600 in a cash ISA with one provider.

It will be possible to transfer cash ISA investments to stocks and shares ISAs.

Some or all of the money saved in cash ISAs in previous tax years may be transferred, while all of the money saved in a cash ISA in the current tax year may be transferred.

However, it will not be possible to make transfers from stocks and shares ISAs to cash ISAs.

Many of the existing ISA rules will still apply from April 6 – for example each person must not invest in more than one cash ISA or more than one stocks and shares ISA in each tax year.

As the end of the 2007/08 tax year approaches it is an excellent opportunity to “top up” or even to start saving in an ISA; up to £3,000 may be saved in mini cash ISAs and up to £4,000 in a mini stocks and shares ISA or up to £7,000 in a maxi ISA.

Why not think ahead to the next tax year and make use of the increased ISA investments from April 6 Anyone investing by regular monthly installments should remember to increase their payments after April 6 in order to benefit from the increased annual limits.

For more details on the Cumberland’s range of ISAs and other savings accounts, call 0845 601 8396 or pop into your local branch.

• Frances Robinson is a Project Manager at the Cumberland Building Society. This article should not be relied upon when making investment decisions. Always obtain financial advice.