Five Questions About: The new ISA allowance

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The Independent Online

How much is my 2011/12 ISA allowance?

The new tax year began on Wednesday which means a new individual savings account (ISA) allowance. It has risen in line with inflation, which means you can invest up to £10,680 in an ISA before 5 April next year – this is £480 more than the 2010/2011 threshold. You can invest the entire amount in a stocks and shares ISA or split it and put up to £5,340 into a cash ISA.

How much tax can I save?

Returns on ISAs are tax-free. Analysis by found that a basic rate taxpayer who had used their full allowance each year since their introduction in 1999 would be more than £3,300 better off than with a standard savings account. A higher rate taxpayer could have earned almost £6,500 more by using their tax-free ISA allowance each year.

Am I able to roll over last year's allowance?

Your tax-free ISA allowance cannot be rolled over into a new tax year, so it really is a case of use it or lose it. If you didn't save the full amount during 2010/11, you can't top up your ISA with extra cash now.

When should I invest?

There is always a last minute rush for ISAs as savers seek to use their allowance before the end of the tax year. However, if you plan to use your ISA allowance this year and have spare cash, invest it now rather than wait to maximise the tax break.

Can I transfer existing ISA savings into a new account?

You can transfer money from cash ISAs into a stocks and shares ISA, or switch it into a higher paying cash account. However, you can't switch from stocks and shares into cash. If you have ISAs from previous tax years in funds that are underperforming, it may be worth moving them. Certainly, if you have money sitting in cash ISAs, the interest rate will have dropped since you opened the account, in which case you should transfer.

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