6 April marks 25 years since Individual Savings Accounts (ISAs) were first launched, back in 1999. In the same year, the Euro currency was introduced, and Britney Spears burst onto the pop scene with her chart-topping debut hit Baby One More Time…
ISAs replaced PEPs – or Personal Equity Plans – which some of you may remember. But ISAs have proved very popular with savers and investors. According to government data, adults paid £66.9 billion into ISAs in the 2021/22 tax year.
You don’t pay Income Tax, Capital Gains Tax (CGT), or Dividend Tax on interest or returns generated from wealth held in an ISA wrapper. So, chances are, you’ll likely use ISAs to increase the tax efficiency of your financial plan.
With 25 years and counting for ISAs, read on to find out some of the changes introduced in April 2024 and how they could affect your savings and investments choices.
1. You can open and save into multiple ISAs of the same type
In the last tax year, you had a £20,000 allowance that you could spread between several different types of ISA, although you couldn’t pay into more than one of the same type of ISA. This meant you could contribute to a Cash ISA and a Stocks and Shares ISA in the same tax year, but you couldn’t pay into two different Cash ISAs.
From April 2024, and for the first time since ISAs were launched, you can open and pay money into multiple ISAs of the same type in the same tax year. In effect, this means that you’ll be able to pay into the same type of ISA with multiple providers in a single tax year.
This change grants you more freedom to shop around for the best deals and could help you to maximise your savings interest or investment returns. It also allows you to move between providers more easily.
The £20,000 allowance still applies, regardless of the number of ISAs you pay into during a single tax year.
2. You can now make partial transfers
From 6 April 2024, you will be able to transfer part of your ISA balance from one ISA provider to another, no matter when you originally paid the money in.
Previously, you could only make a transfer if you moved the entire ISA holding.
If ISAs have formed a core part of your financial plan over the past 25 years, you may have accrued a large amount of wealth in certain ISAs that you hold. This change means you could transfer some of the funds from a single large ISA investment and set up another ISA with a different fund or provider.
You may welcome this change as it allows you greater flexibility and diversification.
3. Innovative Finance ISAs have been given a boost
Designed to boost peer-to-peer lending, Innovative Finance ISAs are pretty niche – according to HMRC, only 0.13% of ISA contributions are made to these specialist accounts.
From 6 April 2024, the range of investments available through an Innovative Finance ISA will be expanded to include long-term asset funds and open-ended property funds with extended notice periods.
It’s hoped that these changes will help attract more investors to open an Innovative Finance ISA. However, peer-to-peer lending isn’t appropriate for everyone. So, if this is something you’d like to learn more about, please get in touch to speak to one of our Financial Planners.
4. The minimum age for Cash ISAs has been increased to 18
The minimum age to open an adult Cash ISA has been increased from 16 to 18, bringing Cash ISAs in line with the minimum age requirement for other types of adult ISA.
In effect, this change has closed a loophole where 16- and 17-year-olds could have a Junior ISA and a Cash ISA in the same tax year – effectively allowing them to save up to £29,000 tax-efficiently.
If you have children or grandchildren aged 16 or 17, they can continue to open and save into a JISA. Remember though, the annual tax-free allowance on a JISA is just £9,000, compared to the adult allowance of £20,000.
5. You won’t need to reapply
One lesser-known ISA rule required you to reapply for ISAs you already held if the account had been dormant for one tax year, or more.
The government scrapped this rule in the Autumn Statement. Now your ISA will remain open and ready to use if you wish.
Plans to introduce a new “UK ISA”
Finally, in the 2024 Spring Budget that took place in March, Jeremy Hunt announced further ISA changes on the horizon.
As part of their growth package, the government is expected to introduce a new “UK ISA” to channel more investment into UK equities.
The plan is to give savers an additional £5,000 ISA allowance on top of their existing £20,000. The only catch being that you’ll have to use the extra amount to invest in British companies.
The additional UK ISA could allow you to make tax-efficient investments above the annual ISA allowance (which remains at £20,000 for the 2024/25 tax year).
For now, the government are in the consultation phase and yet to announce the full details of how the new ISA will work, or when it will be available.
Get in touch
If you’re keen to make the most of tax-efficient savings and investment opportunities or would like to learn more about any of the ISA changes discussed here, please get in touch.
Email contactme@kbafinancial.com or call us on 01942 889 883.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
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