ISAs are coming up on their 25th birthday, and in his Autumn Budget, Chancellor Jeremy Hunt announced that they had a nice birthday present in store.
Individual savings accounts, or ISAs for short, first appeared on the scene in 1999. They were then, and still are, a great way to save and invest while avoiding paying tax. The upcoming changes, which we will discuss a little later in this new newsletter, are by no means earth-shattering. But the ISAs, having been left alone for too long, it is past time for some changes to be made. Unfortunately, increasing the ISA allowance is not one of them.
ISAs first appeared on the scene in 1999. The Chancellor at the time, Gordon Brown, introduced them to replace PEPs (Personal Equity Plans) and TESSAs (Tax Exempt Special Savings Accounts). The first two types of ISA to be launched were the Cash ISA and the Investment or Stocks and Shares ISA. The ISA allowance (the amount you could save on an ISA in any tax year) was £7,000.
In the years that followed, four other types of ISA were created – Innovative Finance ISA, Junior ISA and Lifetime ISA. The ISA allowance has also been increased. From the tax year 2017/18. it is now £20,000. Unfortunately, it is frozen at this amount until the end of the 2024/25 tax year.
Perhaps the most significant change to be announced is the ability to pay into the same types of ISAs that savers and investors have with different providers. Currently, although you can put money into all types of ISAs in any tax year, as long as you don’t exceed £20,000, you’re not allowed to put money into two or more of the same type of ISA. This will change from 6 April 2024 (the start of the 2024/25 tax year). It will give savers the chance to take advantage of the best Cash ISA interest rates by picking and mixing as they wish.
Another upcoming change that has been announced will be the ability to transfer as much as you want from one ISA to another. You can currently transfer an ISA to one of the same type with another provider or to another type of ISA. However, if you have made any contributions in the same tax year during which you wish to carry forward, you must carry forward 100% of the contributions in that year.
However, from April 2024, you will be able to choose the amount of contributions for the current year that you will transfer – just like with money paid in previous years. However, one thing should be noted. If you transfer money from a Lifetime ISA to another type of ISA before your 60th birthday, you will have to pay a 25% withdrawal fee.
Transferring money between ISAs should be done through your ISA provider. If you do the procedure yourself, you have to take the money out of his ISA tax bracket, which immediately exposes him to tax. If you go through your service provider, they use a recognized ISA Transfer process, which ensures that inbound and outbound transactions happen simultaneously and so stay within their tax envelope.
From 6 April 2024, those with stocks and shares ISAs will be able to add fractional shares to their investment ISAs. Currently these ISAs can only include whole shares. This limits investors’ choice of shares as whole shares in large companies can cost hundreds of pounds each. But that will change next tax year. The exact details of how this will work have not yet been released, but the government has promised to release them in the near future.
Another upcoming change announced by Mr Hunt in the Autumn Budget is raising the age limit at which young people can open a Cash ISA. Currently that age is 16, so it was possible to make a total contribution in one tax year of £29,000. This includes the Junior ISA Allowance, which is £9,000 a year, plus the Adult ISA Allowance of £20,000. However, from April 6, 2024, the minimum age will be raised to 18 years. So for anyone wealthy enough to afford to contribute £29,000 to their child’s ISA, please do so by 5 April 2024, as after this date, the loop will cease to exist.
Another ISA negative takeaway from the Autumn Budget announcement is that the upper limit on the price of properties you can use a Lifetime ISA (LISA) to buy remains where it is now at £450,000. It has been in place since LISA was introduced in 2017, and property prices have risen since then, making it almost impossible for people to buy in certain higher-priced urban areas.
Outside the world of ISAs, the Autumn Budget brought good news for UK citizens. National Insurance headline rates will be reduced for both employed and self-employed people and Class 2 NICs will be abolished, helping to simplify the tax system.
There was also good news for pensioners. The triple lock on pensions remains in place – at least for now. This means that from April 6, 2024, pensions will grow by a further 8.5 percent. In addition, some benefits (including Universal Credit) will also increase, by 6.7%. However, as far as universal credit is concerned, the increase goes hand in hand with tougher sanctions. The government will monitor applicants’ attendance at certain initiatives offered by job centers, such as job interviews and job fairs.
The Restart Scheme offer, currently extended to those out of work for 9 months, will be reduced to 6 months. Finally, Housing Benefit claimants will be offered additional help through LHA (Local Housing Allowance) which is revised to reflect local rent prices.
Categories: Trends
Source: HIS Education