ALTHOUGH Chancellor Gordon Brown rarely makes it easy to put money outside his tax net, his pre-Budget report last December was a real boost for savers who want to set aside something more than a pension for their long-term future While guaranteeing the limit for the tax-efficient Individual Savings Account (ISA) will remain at least £7,000 per year, Mr Brown promised ISAs will soon become more flexible. Savers will be able to stash £1,000 in cash and £6,000 in shares each year, instead of current limits of £3,000 for cash mini-ISAs, and £7,000 for equity (shares) ISAs. Another rule change, also applying from April 2008, will allow money in Cash ISAs to be moved into shares while retaining its immunity from the taxman. Investments within an ISA need not be included on your tax return, and no tax is levied on any capital gains. Income earned from an equity ISA need not be declared either, although 10% of dividend income is taken by the taxman on share ISAs before it reaches the ISA manager. Savers lucky enough to pick a share or managed fund for an ISA which soars in value can therefore collect a large lump sum completely free of tax - whenever they want the money, and free of complex rules which surround pensions. Since 1999, when Mr Brown created ISAs to replace the PEPs pioneered by the Tories in 1987, fund manager Fidelity reckons that 17m savers have put £220bn into ISAs. About two thirds is in cash, the rest in stocks and shares. Some investors smart enough to pick high-flying shares have used 20 years of combined PEP/ISA "perks" to build million-pound portfolios. Savers on a lower level know ISA capital gains and income could be vital in augmenting a pension when they stop work - and they have access to their ISA savings any time they need them. Paul Ilott, at Bates Investment Services, says any investor who has used his full ISA/PEP allowance since 1987 to invest in funds which delivered only an average performance would now have a portfolio worth £286,000. But not enough people realise the benefits of ISAs, and are probably unaware there are barely 40 days left - until April 5 - to use a personal ISA allowance for the 2006/7 tax year. IFA Promotion, which represents independent financial advisors, reckons UK taxpayers waste £170m a year by failing to put ISA shelters around the savings: about £86m tax is paid on cash savings outside ISAs, and about £84m goes in tax on shares outside ISA wrappers too. Over four million people hold shares, but many don't bother to put them into ISAs. SAYS David Elms, IFA Promotion chief executive: "If you do not use an ISA, you pay more tax. It's as simple as that. "Take independent financial advice before choosing any financial product, but an ISA is an excellent place for your money." | 
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