With the new tax year starting on 6 April 2012, Which? Money shows you what’s changing and how your personal finances will be affected in the 2012/13 tax year. Today, we explain the increase in Isa allowances.
Isa allowances – what’s happening
Each year you can deposit your savings into a tax-free cash and/or stocks and shares Isa.
The overall limit for the tax year ending 5 April 2012 was £10,680 and this has gone up to £11,280 for the 2012/13 tax year starting on 6 April 2012. Of the £11,280 overall limit, up to £5,640 can be saved in a cash Isa.
Isa allowances – managing your Isa
You’re only allowed to pay new money into one ‘active’ cash Isa per tax year (up to £5,640), but you can hold multiple ‘inactive’ Isas from previous tax years.
Don’t automatically put your new £5,640 allowance into the same Isa as you had last year though, as it may not be offering a competitive deal this year. Also, it’s worth checking the rate you’re getting on previous years’ ‘inactive’ cash Isas – if the rate is disappointing, switch them to an Isa that allows transfers in.
Moving money from one Isa to another
If you want to move money from one Isa to another, your old and new Isa providers should arrange the transfer of your funds between them, protecting your tax-free benefits. You’ll need to complete an Isa transfer form, which will include a note to be sent to your existing Isa provider.
The key point is that you shouldn’t just take out the cash from your Isa account to deposit elsewhere – you’ll lose your tax benefits by doing this.
Isa allowances – getting the best rates
If you’re looking to open a new cash Isa to pay your 2012/13 allowance into, or wish to transfer previous years’ money, check out the Which? Best Rate Isa tables. Fixed-rate cash Isa deals can provide attractive rates if you’re happy to tie your money up for a period of time.
Which? savings analyst Paul Davies said: ‘The start of the new tax year gives you the opportunity to put another £5,640 into your highest-paying tax-free cash Isa. The earlier you top up your Isa, the quicker you’ll be able to accumulate tax-free interest. Check the latest Best Rates to see which providers are offering attractive rates.’