New ISA limit worth £10.40
The big hurrah that greeted Alistair Darling’s increase to ISA limits is worth just £10.40 for those saving in a cash ISA, and even less if you’re a basic rate tax payer. So the widely reported big incentive to encourage savings turns out to be marketing over substance – for now that is.
He (the chancellor) announced that the limit on ISA savings will be raised to £10,200, for the over 50s in the current 2009/10 tax year and for everyone else from April 2010. But buried in the fine print was the news that the increased limit won’t be available until 6 October for the over 50s. In keeping with the existing ISA rules half of the annual allowance can be invested in cash or the entire amount in Stocks & Shares based ISA.
So, what does it actually boil down to? Well the best ISA rates we could find right now will pay 3.5% interest, whether they are still paying that in October is another matter, but let’s press on. The additional £1,500 invested in an ISA from October 6th would generate interest of £26.02 in the current tax year. For a 40% tax payer the tax saving is a mere £10.40
Of course it’s better than nothing, yet the amount of newspaper column inches given over to a £10.40 tax saving this year is disproportionate to the size of the tax benefit. Yet, if as we predict interest rates and inflation begin to rise, the tax benefits will become substantially higher in the coming years.
