Choice of a mess of ISAs, in a dog's dinner contract

The Treasury took a simple idea of tax-free savings plans and left us a maze of options, says Tom Tickell

Give the Treasury a simple problem, and it will come up with a complex solution, as ISAs - Individual Savings Accounts - go to show. What is more, the tax benefits and the limits on what you can invest both fall in April as the new tax year starts.

Give the Treasury a simple problem, and it will come up with a complex solution, as ISAs - Individual Savings Accounts - go to show. What is more, the tax benefits and the limits on what you can invest both fall in April as the new tax year starts.

"ISAs are like a badly packed parcel tied with string," says Ian Millward of independent advisers, Chase de Vere. "They offer a mass of difficult and confusing options, a real dog's dinner of a contract."

The Maxi ISA comes first, and at its simplest allows you to invest up to £7,000 in unit trusts, investment trusts or in stocks and shares this year.

But you can split your Maxi ISA allowance into three. Up to £3,000 can go into investment, directly or indirectly, and you can use another £3,000 for straight savings, via cash ISAs.

Most plans offer a variable rate of interest, which looks attractive now interest rates are rising. There is a final allowance of £1,000 which can go into an ISA providing basic life insurance, if you can find one. Few companies bother to provide such products, because there has been little interest in them.

But the overall limits drop from £7,000 to £5,000 in April, start of the next tax year. The investment limits will not alter, but you will be restricted to £1,000 for straight saving, the most popular option. The allowance for the insurance component will stay the same.

The Mini ISA works differently and you cannot have both, a rule that has caused endless confusion. This time you can use the allowance for saving or investment or insurance. You cannot combine them.

Most people opt for the cash ISA, where the allowance is going to drop to £1,000 next year. Maxi ISAs offer more flexibility, and a higher contribution limits. The new ISA system has some virtues. For a start, you can withdraw money when you want, whether you save or invest.

That is a dramatic difference to the rules on the earlier TESSA contracts sold through banks and building societies where you had to hold your money for five years for the tax benefits to work.

Investors can put ISA money in any fund they choose, even if it invests in America, Japan or Eastern Europe.

But you cannot split the money between Fidelity, Jupiter and M & G in cases where they have an individual outstanding fund, which you would like to combine with the others.

The one way to get round the problem is to put your funds with Skandia which allows you to invest in more than 200 "sub- funds" run by other investment groups.

But, alas, the overall charges on the scheme are up to 50 per cent higher than they will be if you confine yourself to one investment group.