One way of tax free saving

We pay enough tax on our earnings, petrol, food and holidays every year that it's understandable why people also want a savings account that won't be subjected to tax on the return. This is why tax free savings accounts prove popular with many consumers across the UK as they provide a way of tucking some money away each month, safe in the knowledge that it will not be subject to tax.

An ISA (Individual Savings Account) is one way of saving and, since their introduction in 1999, currently allow savers to put away up to £11,280 in a Stocks & Shares ISA or up to £5,640 in a Cash ISA in this tax year.

ISA limits are set per the financial year, which runs from the 6 April to the following 5 April. Any money that you wish to be invested for the current financial year must be made by this date, or else it is added to the next financial year's allocation. The limits can be reached every year, meaning that if an ISA has been running at full capacity for a number of years, the total contained within it could be approaching the high thousands.

Paying into an ISA is easy and can be done in a number of ways. Some cash-rich individuals choose to pay in the full amount at the beginning of every tax year. Others, meanwhile, opt instead to pay the money in over the course of the year, either by making regular monthly payments, making lump sum investments, or a mixture of the two. If the £5,640 limit is reached in a Cash ISA, the remaining allowance could then be made up in a Stocks & Shares ISA.

Withdrawals can be made from an ISA at any time, however, the limits remain in place, meaning that if, for example, a person has a stocks and shares ISA in which they have saved £11,000 in the current financial year, they cannot withdraw £3,000 and then put a further £3,000 back into the ISA within the same financial year, as this would take them over the maximum investment limit for the year of £11,280.

ISAs are popular because they allow people to save money in a tax efficient way. Their tax free status means your savings are free of tax in your hands however tax is automatically deducted from UK share dividends. Furthermore, they are positively encouraged by the government to prompt people to save. For these reasons, it's little surprise that those who save, often use ISAs to do so.