The new tax year begins on Saturday, which means a new ISA allowance of £20,000 will be available.
The annual ISA allowance has been £20,000 since April 2017 and investors have been hoping that the Government will announce an increase for some time.
In last month’s Budget, the Chancellor announced an additional £5,000 ISA allowance (£25,000 total) to invest exclusively in UK assets. A consultation is now taking place, open until 6th June, to determine how this might be implemented in practice so this new allowance isn’t available quite yet.
In the meantime, there are a few tweaks being made to the ISA regime from tomorrow:
-Currently, you can only contribute to one type of ISA in each tax year. This will change from 6th April and you will be able to pay into multiple ISAs of the same type annually.
-The minimum age for opening a cash ISA will increase from 16 to 18 years old. This will bring it into line with the minimum age for opening other types of ISA.
-Under the existing rules, you had to transfer your entire ISA of that type from the current tax year. You’ll now be able to complete a partial transfer of any amount to a new provider, regardless of when the money was paid in.
-Up until now, you have effectively had to re-apply for your ISA if you didn’t pay any contributions in the previous year. This rule is being removed.
-The range of permitted investments within an Innovative Finance ISA is being widened, to include long-term asset funds and open-ended property funds with extended notice periods.
ISAs are a really tax-efficient way to save or invest and form an important part of a Financial Plan for the majority of our clients. Interest and dividends are paid free of income tax and capital growth is not subject to capital gains tax.
Withdrawals are also free of income tax and on death, an ISA can be ‘inherited’ by a spouse or civil partner, to maintain the tax-efficient status of the funds within a couple.
With regards to a Stocks and Shares ISA, you can either fund your £20,000 allowance from cash or by transferring assets from a taxable General Investment Account, a process known as a ‘Bed & ISA’.
Cash ISAs are also becoming more important now that interest rates are higher.
As a basic rate taxpayer, you only need to be holding £20,000 cash and earning 4% interest to use your £1,000 Personal Savings Allowance in full.
If you are receiving our Ongoing Service, we will discuss the availability of your ISA allowance for the 2024/25 tax year and how this should be utilised at your next review meeting.
However, if you have any questions at all in the meantime, please do not hesitate to contact your Financial Planner.
