How much NISA are the new ISAs?

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With so much attention devoted to changes in pension legislation in George Osbourne’s recent Budget, it’s 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’re now called, will undergo a number of changes from 1 July. Here’s a summary of the new rules the Chancellor has introduced:

  • If you already have £11,880 in an ISA for the 2014/2015 tax year you will be able to add an additional £3,120 from 1 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 all the £15,000 can be held as cash if you choose
  • For the first time ever savers will be able to transfer previous years’ funds from stocks and shares ISAs into cash ISAs. This had previously not been allowed
  • Limits on Junior ISAs and Child Trust Funds are also being increased and will rise to £4,000 from 1st July
  • The current annual limit on ISAs will be increased from £11,880 (the figure the Chancellor announced in his last Autumn Statement) to £15,000

The changes have been brought in to help address George Osbourne’s concerns that people in Britain “borrow too much and save too little.”

The legislation comes at a time when savers deserve greater rewards for investing in ISAs which have been subject to low interest rates for a long time.

 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, ISAs now present a very attractive option with a husband and wife being able to save £30,000 a year in a tax-free cash investment
  •  ISAs have also become much more flexible. Graham Beale, Chief Executive of Nationwide Building Society, commented: “The impact this change will have on people looking to make the most of their savings will be huge with savers now able to put in £15,000 a year with much greater flexibility.”
  • For us, flexibility is the key. ISAs will now play a much greater part in our clients’ financial planning, but it will be more important than ever to make sure that your ISAs are performing well – if you’re invested in a stocks and shares ISA – and that you’re always receiving a competitive rate of interest on savings held in a cash ISA.
  • We would expect the increased demand for cash ISAs from 1 July to trigger a wave of competition from the product providers so we will hopefully see some attractive savings rates. Similarly, there will be pressure on the investment companies to make sure they are producing good returns, given that investors can now move all their stocks and shares ISAs into cash holdings. Both of those factors can only be good news for our clients.

If you have any questions on the proposed changes; if you would like to discuss the ISAs you currently hold – or how NISAs can play a part in your future financial planning – then please don’t hesitate to contact us.