The Individual Savings Accounts (Isa) allowance is expected to increase by £470 at the start of the next financial year.
The news comes after the previous increase which was brought in earlier this year, pushing the annual Isa allowance from £7,600 to £10,200, of which half can be stored in a cash Isa.
The Isa limit is set to rise again to £10,670, which will come into force at the beginning of the new financial year (April 2011). Although only half can be added to a cash Isa, investors can place the full amount into stocks and shares Isas and pay no income tax on any returns.It is estimated that over 20 million savers in the UK currently have a tax-free Isa.
Stocks and shares Isas have become increasingly popular as savers look to improve the rate of return against their savings, despite the risks involved when dealing in these types of investments.
The rates being offered by most savings accounts remain low which is partly due to the low base rate.
“With rising taxes, savers and investors really should make sure they put as much as they can in their Isa each year,” said Rob Fisher, of Fidelity Investment Managers.
“Over 42% of the UK population are still not taking up their Isa allowance. Isas are an all year round use-it-or-lose it tax perk and a perfect way to avoid giving hard-earned money straight back to the tax-man.”
Tax-free savings accounts were introduced in the UK 11 years ago in an attempt to boost saving.
According to government figures, the total value of stocks & share Isas in the UK has rocketed, exceeding the value of cash Isas, which have always traditionally been the more popular of the two.
The provisional 2009-2010 figures showed that the total funds held in stocks & shares Isas amounted to £178bn, while the total held as cash Isa deposits stood at £172bn.
The number of stocks & shares Isas also increased from 2,960 to 3,017 in the 12 months to April, marking an increase of 53% which reflects last year’s rise in stock markets.
The total value of funds held in cash Isas, which currently pay an average rate of just 0.69%, rose by 9%.