Individual Savings Accounts (ISAs) have been around since 1999, providing a tax-efficient wrapper for savings and investments. However, in the recent Budget, the Chancellor, George Osborne, promised to increase the simplicity and flexibility of ISAs. As of 1 July 2014, there is now a single ISA which has been named the new ISA, or ‘NISA’, which provides a bigger tax break than ever before and more flexibility about how it can be used.
All ISAs have now become NISAs, including any ISAs opened from 6 April 2014 to 30 June 2014.
How do NISAs differ from ISAs?
• Greater flexibility – You can invest your whole allowance in stocks and shares or cash, or any mixture of the two
• Freedom to transfer – You can transfer existing ISAs from stocks and shares into cash, or the other way around
• Improved tax efficiency – You can now earn tax-efficient interest on cash held in a NISA. Previously, with the exception of a Cash ISA, any cash held within the stocks and shares element of an ISA was subject to a 20% charge on the interest earned
Generous tax break
The ISA allowance has now been increased from £11,880 to £15,000 for the 2014/15 tax year. For any couple, that means they can put aside £30,000 for this tax year, which is a generous tax break. This means you can now save another £3,120 into either cash or stocks and shares in the current tax year. The amount that can be paid into a Junior ISA for the 2014/15 tax year has also increased from £3,840 to £4,000. Do bear in mind that whilst the NISA does allow a generous amount to be sheltered from tax during your life, the total amount forms part of your estate on death and so could be subject to 40% tax.
Moving your existing investments
You also now have the full flexibility of moving your existing investments in a Stocks & Shares ISA to a Cash ISA, or vice versa. You should not withdraw sums from your Stocks & Shares account yourself in order to deposit it into a Cash NISA, or the other way around. If you do, any amount that you pay in may count as a fresh payment against your overall limit of £15,000.
NISA subscription limit
It is worth noting that if you have paid into a Cash or Stocks & Shares ISA since 6 April 2014, you will not be able to open a further NISA of the same type before 6 April 2015. You may however make additional payments– up to the £15,000 NISA subscription limit – into your existing account(s).
Increased flexibility
As of 1 July 2014, there is now increased flexibility in the way that you can use your ISA allowance.
You can now allocate:
• the full £15,000 in a Stocks & Shares ISA
• the full £15,000 in a Cash ISA
• any combination of amounts between a Stocks & Shares ISA and a Cash ISA up to the new limit
NISA limits
For example, from 1 July you could choose to save or invest:
• £15,000 to a Cash NISA and nothing to a Stocks& Shares NISA
• £15,000 to a Stocks & Shares NISA and nothing to a Cash NISA
• £5,000 to a Cash NISA and £10,000 to a Stocks& Shares NISA
• £10,000 to a Cash NISA and £5,000 to a Stocks & Shares NISA – a combination of amounts between a Cash and Stocks & Shares NISA, up to the overall annual limit of £15,000
