Use it or lose it – annual ISA allowance

With the tax year drawing to a close, Nationwide Building Society, the UK’s second largest ISA provider, is urging savers to use their ISA allowance before 5 April 2008 or lose it forever. Nationwide estimates that by failing to use their full allowance, savers in the UK could end up paying more than £225 million extra in tax during the current financial year.

Nationwide Building Society would like to see people take full advantage of their annual ISA allowance and avoid missing out on tax-efficient returns on their savings. Only a thirdof the UK adult population currently hold an ISA and many of these fail to top up their account on a yearly basis.

Nationwide estimates that for the tax year 2007/08:

Mini cash ISA holders will fail to top up their accounts by approximately £9 billion
Mini stocks and shares ISA holders will fail to top up their accounts by approximately £5.5 billion
Maxi ISA holders will fail to top up their accounts by approximately £6 billion

If this total underfunding of £20.5 billion were to be invested in a non-ISA savings product paying a gross rate of 5.25%, an estimated £225 million could be paid to the taxman unnecessarily in the current tax year. Furthermore, if those who do not currently hold an ISA were to have a balance of £3,000 in a non-ISA savings account paying 5.25%, a further £1 billion would be paid unnecessarily to the taxman this financial year.

Matthew Carter, Nationwide’s savings director, said: “With only a month remaining in the current tax year, people should make sure they are taking advantage of the tax-efficient savings on offer by using all of this year’s ISA allowance. Any part of their allowance remaining unused by 5 April will be lost forever. Millions of people fail to do this each year and are simply allowing their hard-earned money to line the Chancellor’s coffers.

“Nationwide offers free expert advice to anyone who wants to find out more about ISAs. We have a range of very competitively priced cash ISAs, as well as stocks and shares ISAs with a range of investment options.”

Currently, savers can invest up to £7,000 in ISAs each tax year. This can be in one maxi ISA or two mini ISAs. In a maxi ISA people can hold all £7,000 in stocks and shares or up to £3,000 in cash and the balance in stocks and shares. In mini ISAs people can hold up to £4,000 in stocks and shares and up to £3,000 in cash. With effect from 6 April 2008, new ISA rules will come into force, removing the mini/maxi distinction and allowing people to save up to £3,600 in a cash ISA and up to £7,200 in a stocks and shares ISA, within an overall savings limit of £7,200. Nationwide would like to see people make full use of their increased ISA allowance in the new tax year and enjoy the tax-efficient benefits of this savings vehicle.