Government to link Isa allowance to rate of inflation

The chancellor has announced that the annual tax free allowance for Isa accounts will increase each year in line with inflation.

During his Budget 2010 speech in the House of Commons, Alistair Darling revealed that the increase coming into effect next month will be followed by future rises in the future.

From April 6th, all savers will be able to place a total of £10,200 in Isas, spread equally across cash and share accounts, which is up from £7,200.

Darius McDermott, managing director at Chelsea Financial Services, suggested that linking the allowance to inflation will protect "the tax wrapper from obsolescence".

However, he claimed that if the chancellor is serious about encouraging consumers to save more money, he will need to raise ISA limits "substantially" in the coming years.

In addition, the government will need to reinstate the dividend tax credit, Mr McDermott stated.

Savers have just over one week to take advantage of their tax-free Isa allowance for the 2009-10 tax year.

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2010-03-25 13:37:37 © Moneyextra.com