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Guide to New Isas
Your IndustrySep 4 2014

Unwrapping a shiny new Isa

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Contrary to the impression given in early government announcements, the new Isa (or Nisa) is not a new scheme separate from existing Isas.

The changes, which were effective from 1 July 2014, are fairly radical amendments to the existing Isa scheme, says Peter Shipp, technical director of saving schemes at the Tax Incentivised Savings Association (Tisa).

The new rules have increased the maximum subscriptions on cash and stocks and shares held in an Isas in 2014 to 2015 to £15,000, up from the previously announced £5,940 for a cash account and £11,880 for an investment account, which was also the overall upper threshold.

Transfers from cash Isas to stocks and shares Isas - and vice versa - will be permitted, but all the experts FTAdviser spoke to warn that this does not mean that all providers will be willing to allow their existing Isa investors to do this.

Previously transfers could only be made from cash Isas to stocks and shares Isas.

Cash and stocks and shares can now be held in a single Isa. Previously cash could only be held in a stocks and shares Isa for the purpose of investing in stocks and shares.

However, although money it can now be held as cash in a combined account without any necessary intention to invest, Mr Shipp says it is likely that better interest rates would be available by using a separate Cash Isa.

Under the new rules qualifying investments in a stocks and shares Isa will no longer be subject to the ‘cash-like’ tests. This means certain bonds which have less than five years to run at the date of purchase in the Isa, and certain investments that fail the current test, will in future qualify.

In addition to cash deposits, Mr Shipp says Cash Isas can also hold short-term money market funds and money market funds meeting the conditions in COLL sections 5.9.3R and 5.9.5R.

In all other respects, Mr Shipp says the Isa regulations remain unchanged.

As a general rule, Peter Rogerson, savings and mortgages director of Virgin Money, says people should always look to make the most of their tax-free allowance each year by using Nisas before looking at other savings products.

He says it is important to research the rates and type of Nisas on the market before deciding what the best product is for them.

Mr Rogerson says people of any age can hold an Isa (in a junior Isa for those under 16, limited to £3,840 per tax year).

The new allowance means a couple who maximise their Isas at the new £15,000 limit could be millionaires within 20 years, allowing for investment returns, Towry claims.

Andy James, head of retirement planning at the firm, says Isas may not be considered the most perfect investment and savings vehicle due to difficulties many investors have faced in transferring their Isas to different providers and the low returns banks are offering on cash Isas.

But he argues the new Isa can be hugely beneficial as a long-term tax-efficient savings product.

Mr James says: “A couple who maximise their full Isa allowances from this tax year (ending 5 April 2015) onwards, could become Isa millionaires in 20 years even if the Isa limit did not move from its new £15,000 level, having £1,041,578 at the end of the 2033 to 2034 tax year.

“This assumes 5 per cent annualised investment returns over the period, with no withdrawals or transfers.

“Even with Isa contributions ceasing in 20 years time and [an example income of] £40,000 being withdrawn annually, plus 2 per cent per year to allow for inflation, investment returns of 5 per cent per annum will mean the portfolio will still continue to rise.”