Nice for Money – New ISA

In his March 2014 Budget speech, the Chancellor of the Exchequer George Osborne said “I want to help savers by dramatically increasing the simplicity, flexibility and generosity of ISAs”.

Following on from the Chancellor’s speech, the aptly named NISA (New ISA) came into effect on 1st July 2014, providing savers with a greater incentive to invest by increasing the permissible contribution to a tax privileged environment.

This year sees the biggest ever increase to the ISA annual allowance, from a combined allowance of £11,880 in 2013/14, to £15,000 for 2014/15. From 1999 to 2008 the ISA limit remained static at £3,000 for Cash ISAs and £7,000 for Stocks and Shares, but has increased every year since then at the rate of inflation plus £120. The dramatic leap in the allowance from 1st July allows savers to pay in:

  • £15,000 to a Cash NISA and nothing into a Stocks and Shares NISA.
  • £15,000 to a Stocks and Shares NISA and nothing into a Cash NISA.
  • a combination of amounts between a Cash and Stocks and Shares NISA, up to the overall annual limit of £15,000.

The increase to the annual allowance is only one of a few definitive changes to the investment product. As promised, NISAs have been simplified offering equal limits for both Cash and Stocks and Shares ISAs. Up until this year, the maximum allowance for Cash ISAs was half that of the Stocks and Shares ISAs. Additionally, savers now have the ability to transfer funds in either direction between Cash ISAs and Stocks and Shares ISAs. Previously, you could transfer a Cash ISA to a Stocks and Shares ISA but not the other way round. This added flexibility allows our clients the peace of mind to invest their full allowance in Stocks and Shares whilst returns on cash are so low but can transfer back to Cash NISA, if rates improve. Also, any interest earned on cash held in a Stocks and Shares NISA will be tax-free and if the provider allows, you can hold both Cash and Stocks and Shares in one NISA.

The limit on Junior ISAs (JISAs) and Child Trust Funds (CTFs) has also increased from £3,720 to £4,000. Both JISAs and CTFs already had the flexibility of being able to invest in both cash and stocks and shares in any proportion.

At PMW we always look to fully utilise our clients’ ISA allowance. ISAs play an important part in financial planning and the new limit makes them even more attractive. Whilst it is not possible to reclaim the 10% tax credit on dividend returns, capital growth within ISAs is free of capital gains tax, and investment returns received as interest will be free of income tax. Capital gains can accrue very quickly on large portfolios and being able to manage a portfolio without the constraints of capital gains tax is beneficial to clients. We welcome the NISA which gives our clients the opportunity and incentive to invest more money in a tax privileged environment.