Whitehaven News

Brown gives the savings carpet a tug

By Derek Baty, of Armstrong Watson

Last updated 11:02, Tuesday, 27 May 2008

In his first budget as Chancellor in 1999 Gordon Brown decided that a new government meant a new savings regime. Out went PEPs and TESSAs and in came Mini and Maxi ISAs.

Visit the Armstrong Watson website

Gordon Brown: Since he scrapped Mini and Maxi ISAs, the maximum that can be sheltered from tax has increased from £7,000 to £7,200, but had the allowance been increased by inflation, the maximum figure should be about £8,400

Mr Brown decreed that the maximum one could save in a cash-based Mini ISA was £3,000 with a further £4,000 available for a stocks and shares-based Mini ISA. Alternatively, the full £7,000 could be invested in a stocks and shares Maxi ISA.

After the initial confusion caused by the Mini or Maxi designation we have all become relatively familiar with these limits over the past few years.

However, on moving from 11 to 10 Downing Street, Mr Brown has decided his parting gift would be to amend the rules and increase the amount we can all save.

The Mini and Maxi designations have now been scrapped and since April 6 the maximum amount that can be sheltered from tax has increased from £7,000 to £7,200!

Had the tax-free allowance been increased by inflation, the maximum figure should be approximately £8,400.

So what do the new rules mean? Of the total allowance of £7,200 per tax year, up to £3,600 of that can be saved in cash with one provider.

The remainder of the £7,200 can be invested in a Stocks and Shares ISA with either the same or another provider. For example, you can choose to save £1,000 in a cash ISA with one provider and £6,200 in a Stocks and Shares ISA with a different provider. If you do not save into a cash ISA you may invest the full £7,200 into a Stocks and Shares ISA. Our old friend the PEP (Personal Equity Plan) now becomes a stocks and shares ISA.

Perhaps one of the most significant changes is that capital built up since the creation of Mini cash ISAs can now be transferred to a stocks and shares ISA (as long as you are over 18).

While cash has provided a safe haven during current problems caused by the credit crunch, history shows that it is not the best asset class for the longer-term investor.

A stocks and shares ISA may not be suitable for everyone – serious consideration should be given as to whether or not moving from cash to a well diversified equity-based ISA is right for you.

A good independent financial adviser will have access to a huge range of funds which can be blended together to match your investment objectives and attitude to risk.

For example, Armstrong Watson Financial Planning can construct a portfolio choosing from more than 900 funds from 67 fund managers which are then constantly monitored to ensure they continue to match your objectives. The change to the ISA rules adds flexibility to your investment planning and opens up a wider range of options which, with the help of an independent financial adviser, could improve your financial wellbeing.