Thursday, 10 April 2014

Have you heard about the changes to ISAs?

I'm a bit behind the times with ISAs it has to be said. Dh and I have never before had the money to invest in them whilst we had a mortgage taken out when we both earned big salaries and then of course I left my well-paid job to work part-time and look after our children.

Things changed last year though when we moved down here to East Sussex and sold our house. Whilst we have far less income now we don't have to sort ourselves out with a house and this means that we can use some of our house equity to take out an ISA or two (it has been the end of the financial year after all).

The basics - what is an ISA?
An ISA (or Individual Savings Account) is a way that you can save for the future without paying any income tax or capital gains tax on the investment returns if you are a UK resident. There are currently two types of ISA accounts - Cash - this is a bank savings account where the interest is added tax-free and Investment (or Stocks and Shares) ISA - this allows you to invest in a wider range of investments (including cash and bank accounts) in a tax efficient way.

The New ISA (NISA)
The Chancellor has announced that from 1 July 2014 there will be reforms to make ISAs into much simpler products, the New ISA (or NISA for short). This change will impact all existing ISAs as well as new ones and this is great news as it means those of us with existing ISAs will benefit from the changes.

What are the benefits?
Currently there is a limit of £11,880 that you can put into your ISAs in any one financial year and the cap on the amount that can go into a Cash ISA is £5,940. When the New ISAs start in July 2014 the yearly subscription limit will change to £15,000 overall and you are free to decide how you split that £15,000 between a New Cash or New Stocks and Shares ISA. You might even decide not to split it at all and just have one New Cash ISA account with the full £15,000 invested in it (or of course put it all into a New Stocks and Shares ISA if that is what you desire). More choice of how you can invest your money has to be a good thing, right?

As well as the increase in the subscription rate for the financial year 2014/15 there is also increased flexibility for transferring your savings between the New ISAs. Never before have you been able to convert a Stocks and Shares ISA into a Cash ISA but from July 2014 this becomes possible. In fact you can convert both Cash and Stocks and Shares ISAs into either the same or the other product as you wish.

The New ISAs will still allow you to transfer between providers and to withdraw your funds as necessary.

In summary -
I hope this has made sense, if you want to reinforce what I've said then have a look at this super easy video from Scottish friendly

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