From 6 April 2008, the amount of money you can put in an Individual Savings Account (ISA) will increase to a total of £7,200 per annum. This includes a new limit of £3,600 – up from £3,000 in the last tax year – that can be held in cash. The remainder can be invested in stocks and shares.

Also from April, savers will also be able to switch balances held in cash ISAs, into a stocks and shares ISA, though not the other way around.

ISAs have proved a popular way of saving since they were introduced by Gordon Brown in the 1999 Budget, when he was Chancellor of the Exchequer. Their main attraction is that any money rolling up within their shelter does not incur either income tax or capital gains tax.

A growing number of people are in line to benefit from the new rules, according to official figures. Last December (2007), the Treasury published two reports showing that ever-improving tax incentives offered through ISAs had encouraged people to save, and that a third of people who are eligible, now hold an ISA account. Of these 40 per cent had saved a significant £8,000 or more.

Economic Secretary to the Treasury, Kitty Ussher said that the research helps to confirm the success of ISAs in encouraging people to save, enabling them to build up a financial asset. She said that around a quarter of the 3,759 respondents cite the ISA tax incentives as the principle reason for saving.

What other changes are there?
In order to simplify the ISA Structure, the distinction between mini and maxi ISAs, which many savers found confusing, will also be abolished from April. The new rule simply states that everyone over the age of 18 has an annual ISA investment allowance of £7,200 which sits under one umbrella.

As much as £3,600 of that allowance can be saved in cash with one provider in a cash ISA, while the remainder of the £7,200 limit can be invested in stocks and shares with either the same or another provider. Savers can put as much as they like into stocks and shares up to the £7,200 maximum.

Key facts about ISAs
• ISAs do not charge tax on interest earned up to a limit
• From 6 April 2008 this limit will be £3,600 for cash, rather than £3,000
• Up to £7,200 can be invested into stocks and shares
• The concept of mini and maxi ISAs will be abolished

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