Consider the options available and get up to speed with the recent changes to ISA rules

As the investment deadline the for 2007/2008 Individual Savings Accounts (ISA) allowance approaches it is worth taking some time to consider the options available and get up to speed with the recent changes to ISA rules.

ISAs are tax-free savings accounts which means individuals do not have to declare any income or capital gains they receive for tax purposes. Individuals can save up to £7,000 each financial year which runs from April 6th until the April 5th the following year.

The clock is ticking with many investment company ISA deadlines falling before the 5th April for the 2007-2008 ISA season. This is because there are different systems in place among investment companies and their managers to accommodate the 'cooling off' period.

With this in mind, it is important to start thinking about where to invest your ISA and to research the deadlines in order to make sure you have time to make the right decision.

There are two types of ISAs - Maxi ISA and Mini ISA. Currently, an individual can only contribute to either one Maxi ISA or up to two Mini ISAs each tax year. If you do invest in more than one Maxi ISA in a tax year, the second ISA will not be tax-free.

Mini ISA

There are two types of Mini ISA - a cash ISA, and a stocks and shares ISA.

The amount you can invest in each tax year is fixed. You can invest up to £3,000 in a cash ISA, and £4,000 in a stocks and shares ISA.

You can have two Mini ISAs – one for cash and one for stocks and shares, which can both include insurance.

Maxi ISA

Investors in a Maxi ISA can include both cash and stocks and shares. However, whichever way your investment is split, it counts as one Maxi ISA. So you can only open one Maxi ISA in each tax year.

A Maxi ISA must have a stocks and shares component, but the life assurance and cash component are optional. The total amount you can invest is £7,000 each tax year. This can be divided between the two components in whichever way an individual wishes but there is a limit of £3,000 for the cash element.

Changes

In the recent budget Chancellor Alistair Darling announced that from this April (for next year's ISA period) the maximum total amount investible in an ISA will be raised from £7000 to £7200. Within this the cash ISA allowance is going up from £3000 to £3600.

Additionally, investors will also now be able to switch money from cash ISAs to shocks and shares ISAs but not vice-versa.

Crucially, the terminology of Mini and Maxi ISAs will no longer exist. ISA savers will also be able to invest in two separate ISAs each tax year; a cash ISA and a stocks and shares ISA.

Mini cash ISAs, TESSA-only ISAs (TOISAs) and the cash component of a maxi ISA will automatically become cash ISAs.