The changes to Individual Savings Account (ISA) allowances announced in this year’s Budget, increasing the maximum annual investment from £7,200 to £10,200, came into effect on 6 October for those aged 50 or over, as well as anyone who will turn 50 before the end of the current tax year. For everyone else, the increase will take effect from 6 April 2010.

There are two types of ISA: a Cash ISA and a Stocks and Shares ISA. You may choose to invest in either or both of these, and if investing in both you can buy each one from a different ISA provider. However, you cannot make contributions to more than one ISA of each type in any one tax year. Any returns within an ISA are free from Income Tax and Capital Gains Tax.

Under the new limits, you can invest up to £10,200 (previously £7,200) in each tax year. Up to £5,100 (previously £3,600) of this can be invested in a Cash ISA: the maximum investment in a Stocks and Shares ISA is £10,200 less any amount invested in a Cash ISA in the same tax year.

If you already have an ISA and are eligible for the higher limits, you may wish to consider making further investments during the current tax year. A small number of ISAs (such as fixed-rate products) may not allow you to add funds after making an initial investment. In this case it should be possible to switch to another provider: however, there may well be a penalty for doing so (which can either be a fixed amount or loss of interest for a certain period). It is therefore important to check the terms and conditions of your account carefully.