Know your tax-free savings limits

Isas are the UK's favourite way to shelter savings and investments from the tax man.

According to HM Revenue & Customs, some 17 million adults have at least one Isa, and taken together they contain around �200 billion.

Introduced in 1999, Isas protect cash savings from income tax and stocks and shares from income and capital gains tax.

Market-leading interest rates

Wrapping shares in an Isa may be of little benefit to a basic rate taxpayer as it is not possible to reclaim income tax on dividends and many smaller investors do not pay capital gains tax.

But tucking away cash in an Isa is tax-efficient for all income tax payers and many cash Isas offer market-leading interest rates.

Isas are to undergo a revamp in April, with the terms 'mini' and 'maxi' being scrapped and replaced by more self-explanatory names.

Investors will in future be able to choose between a cash Isa and a stocks and shares Isa.

Increased and simplified

For the first time since scheme's introduction, the limits are to be increased and simplified.

The cash Isa allowance will rise from �3,000 to �3,600 per annum, and the stocks and shares limit will rise from �7,000 to �7,200.

The changes also add flexibility, with investors permitted to vary the proportion in cash and shares as they see fit, provided they do not breach the overall �7,200 limit.

Previously Isas allowed no more than �3,000 in cash and �4,000 in stocks and shares.

It is worth noting that these are annual limits, so it is possible to save the maximum amount every year and build up a significant amount of savings.

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