Just a few months ago we created a simplified guide to Individual Savings Accounts (ISAs) here at Tax Agility, a guide that sought to help you understand the differences between cash and investment ISAs in just a few short paragraphs.
During Chancellor George Osborne’s Budget speech, he set forth his plan for cash and investment (share) ISAs to become interchangeable, with each existing adult ISA set to turn into a New ISA (NISA), arguably one of the biggest announcements of Mr Osborne’s fourth and final Budget before next year’s General Election.
In what the Chancellor called a bid to dramatically increase “the simplicity, flexibility and generosity of ISAs” for the 24 million UK adults who are currently in possession of one, the New ISA will allow savers to subscribe the full annual tax-free savings limit into a cash account (previously only 50% of this annual limit could be saved in cash, see below), as well as adding a wider range of securities that can be invested within a New ISA; such as certain retails bonds less than five years from maturity.
Designed primarily to support savers, especially those who were previously hitting their annual cash ISA limits on a yearly basis, HMRC predict the economic impact of the introduction of the New ISA to be as follows:
“These measures will reduce income tax on savings for people constrained by the current ISA limits, improving incentives to save and increasing real household disposable incomes. This might feed through to higher consumption or savings in the household sector. There may also be a shift in the savings portfolio composition towards cash deposits.”
NISA Tax-Free Limits
From 1 July 2014 the new, all-inclusive tax-free NISA limits will be increased to £15,000 a year.
Previous to cash and investment ISAs becoming interchangeable, you could only place up to 50% of your annual ISA limit into a cash ISA — a limit which was set at £11,520 for the 2013-14 tax year. The Chancellor’s tax-free NISA increase to £15,000, as of July this year, represents a significant rise (£9,240) in the tax-free amount previous cash-only ISA savers can save each year.
Junior ISA limits have also been raised, though at a much lower percentage, from £3,720 to £4,000. In a policy paper published immediately after Mr Osborne’s 19 March 2014 budget, HMRC claimed that 300,000 children under the age of eighteen currently hold a Junior ISA. An estimated six million children across the UK still hold a Child Trust Fund (CTF), the precursor to Junior ISAs, with the savings from a CTF being able to automatically transfer to a Junior ISA (or an adult ISA, should the child have reached age eighteen by then) from April 2015.
Understanding the New ISA
To speak with a professional to discuss how you can get the most from the New ISA, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.