What is the ISA Allowance for the 2012-2013 Tax Year?

Feb 21, 2012
Carol Finch

What is the ISA Allowance for 2012? - Image by svilen001

The new UK tax year starts on April 6th 2012. This date sees an increase in the tax free Individual Savings Account allowance. How much can you save?

Individual Savings Accounts (ISAs) are savings/investment products that allow consumers to save tax-free. You aren't allowed to save unlimited sums here, but are given an annual allowance that runs through the tax year. Has this changed for 2012-2013?

What are the ISA Limits for 2012?

The current total limit for the 2011-2012 tax year is set at £10,680. This will rise to £11,280 from April 6th 2012, allowing you to save an additional £600. This is the last year that increases will be based on the Retail Prices Index (RPI) as future changes will be made on the Consumer Prices Index (CPI) instead. The ways that you can save or invest will remain unchanged.

How Can You Spend Your ISA Allowance?

You can save into an existing or new cash or investment product but, as is usually the case, you can only put cash into one account of each type in any given tax year. Your options are to:

Save into a cash account.
Use an investment product.
Split your allowance between both cash and investment ISAs.

As usual, the rules governing how much you can save/invest do not work on a 50/50 split. You can invest the whole £11,280 into an investment ISA but only £5,640 into a cash account.

If you choose to use both options, you can allocate anything up to £5,640 as cash savings and any or all of the remainder of your allowance as an investment. Any money you make under an ISA wrapper will be free from tax charges.

How to Choose New Individual Savings Accounts

If you want to open an ISA for the first time, are considering opening a new account or want to transfer to a new provider, you'll need to do some research. This is especially important for cash products. Interest rates for savings at the moment are low and it can be hard to find a decent return.

You may find it useful to use ISA comparison sites to see what is out there. Do remember, however, that many products come with introductory offers that inflate their interest rates for a set period of time to attract new customers. It is, therefore, also important to look at the underlying rate to work out the overall returns before making a final choice.