The other big story from last week’s Budget was the changes to Individual Savings Accounts (ISAs), now to be known as the New ISA or NISA!
A huge increase here from the limit already announced for the tax year 2014/15 of £11,880 to £15,000 per person (over the age of 18).
This will be introduced from 1 July but if you wish to invest £11,880 as soon into the new tax year as possible, you are free to do so and will be able to add a further £3,120 after 30 June to top up to the new allowance of £15,000.
Splitting Your Allowance Between a Cash ISA and a Stocks & Shares ISA
Removal of Limits into a Cash ISA
At present only half of the ISA allowance may be invested into a Cash ISA (a maximum of £5,940 from 6 April). That restriction is being scrapped from 1 July.
You will be able to allocate the £15,000 annual allowance in whatever way you wish between a Cash ISA and a Stocks & Shares ISA (not forgetting that a Stocks & Shares ISA can also invest in bonds and commercial property, as well as shares).
If you decide to invest up to £5,940 into a Cash ISA shortly after the start of the next tax year, you will be able to top up your investment into the same Cash ISA or into a Stocks & Shares ISA up to the new allowance of £15,000 after 1 July.
As at present, you will only be able to invest in one Cash ISA and one Stocks & Shares ISA each tax year but if you wish to invest, say, £10,000 into a Cash ISA and £5,000 into a Stocks & Shares ISA, you are free to do so.
More Freedom to Switch Between a Cash ISA and a Stocks & Shares ISA
Current rules only permit the transfer of funds from a Cash ISA to a Stocks & Shares ISA and not the other way round. This restriction is being scrapped so you will be free to transfer funds as you wish.
The restriction on transferring only part of a current year’s ISA allowance will remain in place. Previous years’ investments can be transferred in part or in full and allocated between a Cash ISA and a Stocks & Shares ISA as you desire.
Any investment made in the same tax year as the one in which you wish to transfer your ISA to another ISA may only be transferred in full.
An Increase for Junior ISAs as well
The increase here is more modest than for other ISAs but will increase from £3,840 to £4,000 from 1 July.
Again, any investments made of up to £3,840 between 6 April and 30 June can be topped up to £4,000 from 1 July.
- Unlike pension allowances, ISA allowances cannot be carried forward from one tax year to the next so the principle is ‘use it or lose it’. This year’s deadline of 5 April is fast approaching but don’t leave it until the last minute.
- If you wish to transfer your current ISA, never cash it in first as you will lose the tax benefits.
If you wish to transfer, you simply complete a form for the new ISA provider and they will contact your existing provider and arrange the transfer; you need get no further involved than that.
- There is still a common misconception that you have to tie your funds up for a minimum period of time.
This is only the case with a Cash ISA where you invest in a fixed interest rate product; withdrawals are always freely available from a Stocks & Shares ISA unless a fund manager has imposed any restrictions relating to a specific fund which is unusual.
- If you still have a PEP or a mini Shares ISA, this is now simply a Stocks & Shares ISA. If you still have a TESSA or mini Cash ISA, this is now simply a Cash ISA.
The changes outlined above apply to both in the same way as all other Cash or Stocks & Shares ISAs.
A welcome increase in investment limits and greater flexibility for what is the most popular savings product amongst investors.
With interest rates so low, the investment benefits of Cash ISAs are unattractive at present but provide a useful home for your money if you feel that share, bond or property markets are heading for a rough ride in the short term.
Definitely an investment opportunity that you should not allow to pass you by.