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ISAs: Increased Flexibility for Your Financial Planning MFP Wealth ManagementRadical Overhaul of ISA Rules

Virtually all the headlines surrounding George Osborne’s recent Budget were about the changes to the pensions rules. With all the attention devoted to pensions, it was easy to overlook a radical overhaul of the rules governing Individual Savings Accounts – ISAs as they were formerly known and NISAs (New Individual Savings Accounts) as they’ll now be called.

The changes will come into effect from 1st July. Here’s a brief summary of the new rules:

  • The new annual limit will be £15,000, so if you already have £11,880 in an ISA for the 2014/2015 tax year you will be able to add a further £3,120 from 1st July
  • The division between stocks and shares ISAs and cash ISAs will disappear. Previously you could only hold 50% of the annual ISA allowance in cash: from 1st July the full £15,000 could be held as cash, if this is right for your portfolio and asset allocation
  • For the first time ever savers will be able to transfer previous years’ funds from stocks and shares ISAs into cash ISAs
  • Limits on Junior ISAs and Child Trust Funds are also being increased and will rise to £4,000 from 1st July.

What This Means for You

I welcome these changes, but what are the practical implications for our clients?

  • First of all you can now save almost three times the previous limit in a cash ISA – up from £5,940 to £15,000. For savers whose first concern is security or minimum risk, ISAs now present a very attractive option with a couple being able to save £30,000 a year in a tax-free cash investment.
  • ISAs have also become much more flexible. They have always played an important role in our financial planning for clients, but that role may now be even greater. It will be more important than ever to make sure that you are receiving a competitive rate of interest on any savings held in a cash ISA.
  • I would expect the increased demand for cash ISAs from July 1st to trigger a wave of competition from the product providers so we will hopefully see some attractive savings rates.

We have completed the annual exercise of taking out investment ISAs up to the current limit of £11,880 for this tax year for the relevant clients, and will be topping those ISAs up to the increased limit in July to make sure our clients’ portfolios are invested as tax efficiently as possible.

Please get in touch if you have any questions about your financial planning or portfolio.

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