Review of tax-free savings limits "utter common sense"

The financial services sector has welcomed government plans to review the tax-free limits on individual savings accounts (ISAs).

14:26 03 December 2004

The financial services sector has welcomed government plans to review the tax-free limits on individual savings accounts (ISAs).

Chancellor Gordon Brown announced that he would consult on postponing plans to reduce the tax-free savings limit, which had been due to come into force in April 2006.

ISAs currently let consumers invest up to 3,000 a year in a cash savings account, 3,000 a year in equity and 1,000 in insurance.

The ISA was created as a tax-efficient way to encourage those on low incomes to save for their future. Money can be withdrawn from the product without a notice period or penalty charges and interest earned is tax free.

However, the government was planning to reduce the amount of money that could be saved in cash each year from 3,000 to 1,000 after April 2006.

But in his pre-budget report yesterday, Mr Brown said he would consult on extending the current allowances until 2009 in a move welcomed by the industry.

"For a government committed to encouraging greater savings, maintaining the current ISA limits after 2006 can only be seen as utter common sense," said Jerome Melcer, actuary at BDO Stoy Hayward Investment Management.

Daniel Godfrey, director general of the Association of Investment Trust Companies (AITC) also praised the move.

"ISAs have been a great success story and it is important that current ISA limits are increased or at least maintained to encourage investors to save for their future," he said.

"This is a clear acknowledgement from the government that it is vital to incentivise savings at a time when current levels in the UK are too low."