Don't pay voluntary tax on your savings

With its latest savings initiative, the Government estimates it is going to give away an extra £85 million over the next couple of years or so. For those aged 50 or over, the ‘'Great Tax Giveaway' starts on 6th October 2009, for those aged under 50 the good news is a few months down the road.

The money will be given away through a £3,000 increase in the annual ISA allowance. For those born before 6th April 1960, the annual allowance increases to £10,200 from October and if they have already made a smaller contribution into an ISA this tax year they can top it up, to the overall limit. For others, the limit remains at £7,200 for this tax year but will increase next tax year.

The Government has to make provision to give away this extra £85 million because it normally collects tax from investments and savings. Because it does not collect tax from the returns from an ISA it will no longer be able take tax from all the additional £3,000s. In fact, they already estimate they give away £2 billion for ISAs and this is to be an extra £85 million.

Paul Kennedy, Director of tax wrapper & trust planning at Fidelity International, says: "Normally, I tend to look at ISAs from the investor's perspective. That is, how much better off an investor would be by wrapping their investments or savings in an ISA, compared to not doing so. However, it's no bad idea to look at the bigger picture. £2 billion is a lot of money and it shows you just how much money people who use ISAs are already saving. It's great to think that all that money is going back into the investor's pocket rather than the taxman's.

"It's really important to understand that doing an ISA is not about taking more risk with your money and it's not about taking less risk. It's simply about understanding that wherever you chose to save or invest, the taxman normally takes part of your investment return. With an ISA he does not and you'll get more back. If you have savings or investments and don't use an ISA you're going to miss out on your share of this great giveaway."

For more information, visit fidelity.co.uk.