With less than a month to go before the tax year ends the “ISA season” is now in full swing. Investment houses, banks, building societies have got their marketing departments in overdrive to attract investors and savers to invest their annual ISA allowance.

After a couple of volatile years, the stock markets have made a major recovery (I’m not so sure we wont see another large drop this year) and with interest rates at all time lows stocks and shares ISA providers are seeing a surge in sales. 

This coming tax year 2010-11 will also allow an increase in the ISA limits up from £7200 to £10200, with cash allowances going up to £5100.  This means a couple will be able to invest a combined sum of £20,400 into these tax efficient investments. No doubt the press around this will also attract further interest in April. 

However all said and done, there is a good reason for this end of year drive. If you do not use your allowance before the end of the year you will lose it. However, quite often better rates and deals will emerge in the 2 weeks before the 5^th April. 

Do take care with your cash ISA investments as many headline interest rates only last for a limited time periods before dropping back. It’s also important to check your existing cash ISAs are still getting competitive rates. If you do decide to move it, make sure you fill out the correct paperwork for a transfer and don’t simply withdraw it or you will lose the ISA status. 

With regards to stocks and shares ISAs they are not always the best advice, as the advantage for growth funds is minimal. Their main advantage lies in the fact that they can generate a tax free income. A portfolio of ISAs built up over many years can generate a healthy tax free income in retirement. They will however fall into your estate on death, and so could be liable to 40% Inheritance tax – no point in growing the money only to have the taxman take such a large slice. As always, don’t let the tax tail wag the investment dog. So make sure you get good investment advice from an experienced independent financial adviser before investing. 

Lastly, I have never quite understood the end of year ISA season for clients of a financial planner. We would advise you to use your ISA allowance on the 6^th of April – the beginning of the tax year rather than wait till the end. That way you get the advantage for a whole extra year.