Cash ISA Limits
A cash ISA is a savings product available to citizens of the United Kingdom. Legislated by the government, a cash ISA allows any individual over the age of 16 to invest a set amount of money each tax year and for that capital to be exempt from tax on the interest it gains. Introduced to replace the previous government savings initiative --- the TESSA, or Tax-Exempt Special Savings Account --- the cash ISA is subject to certain conditions, including limits to the amount an individual can invest.
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Allowance
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For the tax year 2010/2011 --- which runs from April 6 to the following April 5 --- the maximum amount of capital that an individual can invest in a cash ISA is £5,100. This is a rise of £1,500 from the limit in the previous tax year, which was set at £3,600. The U.K. government has announced that from the 2011/2012 tax year, the investment limit for cash ISAs will rise in line with national inflation, rounded to the nearest £120.
Deposits
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It's permissible to deposit the maximum amount into your cash ISA in one lump sum, or to invest several smaller amounts up to the limit over the course of the year. You can't "hold over" any of your unused cash ISA allowance and use it the following year. If funds are available, it's preferable to invest the maximum allowance at the start of the tax year to gain the most tax-free interest.
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Withdrawals
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You can withdraw some or all of your cash ISA capital at any time you choose. However, any monies that you withdraw still count toward your cash ISA allowance for that tax year. Thus, if you've invested £3,000 and you withdraw £2,000, you can still only make deposits totaling £2,100 during the same tax year, as you invested £3,000 initially. Be advised that certain cash ISA providers may offer better interest rates in return for locking your money away for a set period. Withdrawals before the expiry date of these products may incur penalty fees.
Other Conditions
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You may only hold one cash ISA per tax year. Even if you don't use your limit for that ISA, you're not permitted to invest the difference in an alternative. If you also have a stocks and shares ISA --- which allows tax-free investment in the stock market --- the amount you invest in this can affect your cash ISA investment. An individual can invest £10,200 in total across both ISAs, with the maximum for a cash ISA of $5,100. If you invest £10,200 in a stocks and shares ISA, you can't invest any capital in a cash ISA.
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References
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