26 August 2014

Everything you need to know about ISA changes

The 2014 Budget contained some big news for savers: changes to ISAs which came into effect in July this year mean you can now save up to £15,000 and enjoy more flexibility over where you save or invest your money.

While this “ISA revolution” has been welcomed by many savers, there remains some confusion around the changes. We take a look at the main changes and see how they’ll affect you.

What are the changes

From July 2014, the tax-efficient ISA allowance was increased significantly to £15,000, compared to £11,520 in the 2013/14 tax year.

ISAs now offer much greater flexibility than they have done before. In previous years, savers were restricted to putting half of their total allowance in a cash ISA, while the remainder had to be invested in a stocks & shares ISA. (Alternatively, they could invest the full allowance in a stocks & shares ISA.)

Now, you can save or invest the full £15,000 as you choose.

Moving around

The greater flexibility offered by ISAs also means you can transfer any money held in a stocks & shares ISA into a cash ISA and vice versa. Low interest rates might tempt you to invest in stocks & shares, depending on your attitude to risk.

Remember too that the previous year’s savings can now be transferred into a stocks & shares or cash ISA of your choice – in whole or in part. Check with your provider, though, as they don’t all offer part transfers.

You can also transfer your ISAs between providers as many times as you like – particularly good if you've spotted a better interest rate elsewhere. Nationwide offer a range of ISAs which may suit you.

Mixing Cash and Stocks & Shares ISAs

While, as in previous years, savers are entitled to hold one cash ISA and one stocks & shares ISA, savers can now hold cash tax-free within a stocks & shares ISA, if this is allowed in the provider's terms and conditions. However, many savers still prefer to have separate ISA accounts for their Cash, and stocks & shares.

Any similarities

It’s not all change. As in previous years you can only hold one Cash and one stocks & shares ISA, with a combined maximum value of the current tax year’s allowance (which has increased to £15,000 from July 1st).

Withdrawing your money from an ISA still affects your overall tax-free allowance amount, for example; if you deposit £10,000 in to a Cash ISA and then go on to withdraw the £10,000 in the same tax year. It would mean that you will still only be able to deposit a maximum of £5,000 back in to an ISA as the total value you can deposit into ISA products for the 14/15 tax year is £15,000.

What happened from 1st July 2014?

Your existing 2014/2015 ISA will have automatically been given a higher limit and greater flexibility. Moving forward you’ll be able to add further money to either your Cash or stocks & shares ISA, up to the £15,000 limit.

Changes to ISAs explained

Important information

Please remember that with investments such as stocks & shares ISAs: the value of investments can fall as well as rise which means that you may not get back the amount you originally invested.

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