Since their introduction in 1999 the ISA (Individual Savings Account) has been an important way of sheltering savings and investments from tax.
But this popular product, which currently holds over £2200 billion on behalf of savers and investors, is about to get a new lease of life, with higher limits, more flexibility, new investment options and even a new name, the imaginatively titled, New ISA or NISA for short.
So how can you take advantage of the changes? We’ve come up with five great ideas to help give your savings and investments a boost.
1. Shelter more money from tax
The amount you can pay into an ISA rose at the start of the new tax-year, 6th April, to £11,880.
It will then leap to £15,000 from 1st July. This is the largest ever increase to ISA allowances and means a couple could shelter a whopping £30,000 of their cash each year from tax.
A word of warning though, if you plan to pay into a fixed rate Cash ISA between now and 1st July, make sure that the bank or building society you choose will allow top-ups when the limit rises. Not all will, although it would appear some, such as the Halifax, plan to make an exception.
2. An end to discrimination against savers
Savers, who use deposit accounts and want to take no investment risk with their money, have always had a raw deal when it comes to ISAs. Until the changes, the maximum amount which could be paid into a Cash ISA each year was only 50% of the overall limit, condemning savers to paying more tax than investors.
However, the new rules change all this; from 1st July savers will be able to put the full £15,000 into a Cash ISA.
This is a huge step forward for savers and will allow savers to keep more of their interest and pay less to the taxman.
3. Reduce risk at the right time
At the moment it is possible to move money held in a Cash ISA to a Stocks & Shares ISA, but not the other way around.
This caused problems for many people who want to reduce the risk they are taking with their money, whilst retaining the tax advantages of an ISA.
Again, the new rules will sort this problem out.
From 1st July, it will be possible to transfer 100% of your money from a Stocks & Shares ISA to a Cash ISA. Of course you will still be able to go the other way, if you want to take more risk with your money in the hope of getting a better return.
4. Peer to peer lending in an ISA?
For over five years Cash ISA investors have been hit by poor interest rates.
Whilst many savers have been unwilling to take significantly more risk with their money and move to a Stocks & Shares ISA, some have been prepared to consider the relatively new option of peer to peer lending.
However, this has not been available in an ISA, which meant taking your money out of a tax free shelter if you wanted to try and improve your returns through peer to peer lending.
In his Budget the Chancellor announced that he would be consulting on whether or not to allow Peer to Peer lending in ISAs. Only time will tell whether this option is ever allowed into an ISA.
5. Don’t forget the kids!
The maximum amount which can be paid into a Junior ISA will rise in July from £3,840 to £4,000; the same limit will apply to Child Trust Funds.
Most children don’t pay tax, so the initial benefit of a Junior ISA is limited. However, at 18 the Junior ISA converts to an ‘adult’ ISA and will continue to shelter savings and investments from the taxman in later life, when it is far more likely your child will be a taxpayer.
Remember too, that from April 2015 it will be possible to transfer money from a Child Trust Fund to a Junior ISA, which may offer a better rate of interest or lower charges.
ISAs, now even more valuable
ISAs have been a popular option for savers and investors for over a decade, in-fact we already have a small number of ISA millionaires.
The changes will make ISAs even more popular and will help to reinvigorate many people’s savings and investments, with higher limits, new options and new found flexibility.
If you’re unsure what action you should take, how to take advantage of the new rules or whether you should make any changes to your existing ISAs, we are here to help.
Call one of our IFAs today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org