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Isa allowance: So the limit has been 'frozen' - tax-free savings of £15,000 seem pretty warm to me

The freeze on the maximum amount of money that you can stash in an Isa shouldn't come as much of a surprise

Simon Read
Friday 27 November 2015 23:09 GMT
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George Osborne hiked the allowance last year. He didn’t need to pull another rabbit from the hat
George Osborne hiked the allowance last year. He didn’t need to pull another rabbit from the hat

Underwhelmed by the Chancellor's Autumn Statement this week? So was I. But there are one or two things to be aware of. For a start, regular savers who like to use up all their tax-free Isa allowance will have been disappointed by the news that the current limit won't be climbing next year

However, the freeze on the maximum amount of money that you can stash in an Isa, or a Junior Isa, shouldn't come as much of a surprise – as Jason Hollands of the adviser Tilney Bestinvest pointed out.

"When the Government substantially hiked the Isa allowance with the creation of the 'new Isa' in July 2014 – from £11,520 to £15,000 – it also made an important commitment to adjust the allowance each year to reflect inflation.

"And guess what, the UK hasn't experienced inflation over the last year so the Isa allowance stays flat," he said.

In fact, the allowance currently stands at £15,240 per person, which seems generous enough to me to encourage all of us to save – which is the point of the tax-free allowance in the first place.

Frankly, I can never imagine having savings large enough to get anywhere near that sort of level.

It is also worth bearing in mind that couples have two lots of individual allowances. That means they can put £30,480 in savings – and they won't have to pay any tax on the money.

To put this in some kind of context, that's several thousand above the current average annual wage. According to the latest official figures, the average median salary for full-time workers is £27,600.

However, the news of the freeze should serve as a reminder – or wake-up call – to anyone who has savings. If you're a taxpayer and not using Isas, you're almost certainly losing out.

The simple point to bear in mind is that whatever rate you can get on an Isa is net, which means there's no tax to pay on the interest. To find a standard savings account that beats an Isa rate, it will, in effect, need to pay 25 per cent more interest. Take an Isa that pays 0.8 per cent; a standard account would match returns if it paid 1 per cent.

Have a look at our "best buy" tables on page 54 to see what kind of deals are currently available. There you will see instant access Isas paying around 1.55 per cent. To beat that on a standard account you would need interest of more than 2 per cent – but the best you can get at the moment on an easy access account is just 1.65 per cent.

When interest rates start to rise – as they will do eventually – the differential is likely to climb. So it makes real sense to make the most of your Isa allowance now if you have savings.

Incidentally, some of the bigger banks have announced details of their Help to Buy Isas before their launch on 1 December. NatWest yesterday unveiled its offering, a 2 per cent, deal but it has been trumped today by the Halifax, which will offer 4 per cent.

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