This year marks the 25th anniversary of the film Notting Hill, Britney Spears’ debut album Baby One More Time, and the introduction of Individual Savings Accounts, or ISAs as you might know them.
ISAs are one of the most tax-efficient ways to save and invest. So, the introduction of new rules that potentially make ISAs even more attractive, may be welcome news to many of your clients.
In his 2023 Autumn Statement, chancellor Jeremy Hunt announced a string of ISA changes, which came into effect on 6 April 2024.
The new rules are designed to simplify ISAs and offer savers more choice and freedom.
Indeed, This is Money has reported that record numbers of people rushed to take advantage of the new rules by opening ISAs in the first two weeks of April.
While some hoped-for changes were missing from the government’s plans – most notably, an increase in the annual ISA allowance – read on to find out about four key changes to ISAs that took effect from 6 April 2024 and how these could affect your clients’ wealth.
1. Your client can open and pay into multiple ISAs of the same type each tax year
There are four main types of adult ISA:
- Cash ISA
- Stocks and Shares ISA
- Lifetime ISA
- Innovative Finance ISA.
As of 6 April 2024, your client is free to open and pay into multiple ISAs of the same type in the same tax year (except Lifetime ISAs). So, they could choose to hold two Stocks and Shares ISAs or multiple Cash ISAs.
Previously an individual could only pay into one of each type of ISA in a single tax year.
The new rule offers greater flexibility and may allow your client more control over their wealth.
Imagine that they’ve already paid into a Stocks and Shares ISA this tax year and then find another one that aligns more closely with their investment values or offers the potential for higher returns. Under the new rule, your client could open and start paying into the new ISA straight away, with no penalty.
Similarly, they might find a second Cash ISA offering a more competitive interest rate than their current one. Since 6 April 2024, they have the option to pay into both at the same time.
Your client needs to take care not to exceed the annual ISA allowance, which remains at £20,000 (2024/25). This applies across all the ISAs an individual holds. So, if your client chooses to pay into multiple ISAs, they’ll need to keep careful track of their contributions.
2. Partial transfers between providers are allowed, regardless of when the money was paid in
Under the new rules, your client can transfer any amount of their ISA balance to another account, regardless of when they paid the money in.
Before this change came into effect on 6 April, if someone wanted to move their ISA to another account or provider, they would have had to move all their current tax year subscriptions. Partial transfers were only allowed for funds paid in a previous tax year.
This all-or-nothing approach restricted savers’ ability to adapt their ISA holdings in line with their changing needs and opportunities.
In contrast, your client now has the freedom to move portions of their ISA holdings wherever they choose to. This could allow them to align their saving and investing strategy with their financial plan as it changes and develops.
However, it’s important your client follows the transfer process carefully to avoid losing the tax advantages of the ISA, for example, by withdrawing funds directly from their account. So, they may benefit from seeking professional financial advice before moving their ISA funds.
3. The minimum age for opening a Cash ISA has increased to 18
Before 6 April 2024, there was a “loophole” in the rules for ISAs that meant those aged between 16 and 18 could potentially boost their annual tax-efficient savings from £20,000 to £29,000.
This was possible because a 16-year-old was eligible for both a Junior ISA (JISA) with an annual allowance of ÂŁ9,000 and a Cash ISA with an annual allowance of ÂŁ20,000.
Now, the minimum age for Cash ISAs has been increased from 16 to 18, in line with the minimum age for the other types of adult ISAs.
So, if your client plans to open a Cash ISA for a child or grandchild, they will need to save into a Junior ISA (JISA) until the child is 18, when the account will usually be converted into an adult ISA.
If your client has young family members who are under 18 and already have an adult Cash ISA, the government has put transitional arrangements in place that will remain until 5 April 2026.
4. Your client does not need to reapply for their ISA each year
Under the new rules, an ISA remains open for life, unless the account holder chooses to close it.
Previously, if your client did not make any contributions to their ISA in a single tax year, they would have to make a “redeclaration” for their ISA – effectively reapply for their account – before they could start paying into it again.
This change could save your client valuable time, inconvenience, and potential confusion.
The government is currently in consultations on a new “UK ISA”
A particularly interesting announcement in the 2024 Spring Budget was the government proposal for a new “UK ISA”.
This would give savers an additional £5,000 ISA allowance – on top of the existing £20,000 allowance – for investments in UK equities.
While the opportunity to save more tax-efficiently may sound like good news, any other benefits of this new ISA remain uncertain.
Your client may already choose to favour British investments using their existing Stocks and Shares ISA – without the need for a specific UK ISA. What’s more, increasing their UK-based investments could result in a less diversified portfolio and potentially, higher levels of risk.
Also, until the government’s consultation period on the UK ISA ends in June 2024, it remains unclear if or when the UK ISA will launch.
However, if you have clients who consistently use their full ISA allowance each year, they may want to keep an eye on the progress of this potential new opportunity to save and invest more tax-efficiently.
Read more: The British ISA: What is it and should you consider investing?
Get in touch
If your client would like to know more about the recent ISA changes and how they could make the most of them, we can help.
Please email us at mail@delaunaywealth.com or call 0345 505 3500.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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