I read an article the other day that said that 77% of British adults have no idea of the new ISA rules that came into effect in July 2014.
The changes were supposed to make ISAs more attractive to investors and simpler however there is a general feeling that the changes have not been explained well enough. Perhaps the radical changes in pensions and the Lamborghini effect has played its part in distracting us!
Here is a summary of what has changed:
- New ISA annual allowance- the ISA allowance (the amount you can invest each tax year) has risen to £15,240.
- Improved flexibility- historically there were restrictions on how you could split your allowance between Cash ISAs and Stocks & Shares ISAs. Now you can split your allowance as you choose.
- New death benefits- investments are normally subject to Inheritance Tax (IHT) of 40%, if the total value of your estate exceeds the 'nil-rate band'. This is currently £325,000 for individuals, or up to £650,000 if you inherit your spouse's or civil partner's unused allowance. Changes announced in the Autumn statement mean that surviving spouse's will have an additional ISA allowance, equal to the amount the deceased spouse had in their ISA.
- Improved transfer options- you can now transfer from a Stocks & Shares ISA to a Cash ISA, and vice versa. Under previous rules you could only transfer from a Cash ISA to a Stocks & Shares ISA. This removes one of the biggest barriers to transferring Cash ISAs to Stocks & Shares ISAs - that you couldn't transfer back again. With interest rates remaining at historic lows, we are seeing increased interest from investors who are happy with the risks and are looking to transfer their Cash ISAs to Stocks & Shares ISAs
- Earn tax-free interest in Stocks & Shares ISAs- you have always been able to hold cash in a Stocks & Shares ISA, but interest was, in effect, paid net of basic rate tax. Under the new rules interest on cash in a Stocks & Shares ISA is paid gross and is completely tax-free. Cash ISAs remain unchanged.
If you are interested in making the most out of this new flexibility please do not hesitate on give us a call.
Chris Dixon Dip PFSDirector, Approachable Finance