Extended limits and eligible investments

The new allowance was set at £15,000 for the 2014 to 2015 tax year and the Nisa allows savers to invest the whole allowance in cash if preferred rather than just half the total allowance, which was previously the case.

This meant that the increase from the previous allowance of £11,520 represented a near three-fold increase in the amount that could be held in the tax sheltered vehicle in cash.

Previous rules also prohibited the transfer of a stocks and shares Isa into a cash Isa, although you could switch in the other direction from cash to stocks & shares. However, the introduction of the Nisa turned that on its head.

Now if you would prefer to reduce the risk of your Isa portfolio, Anna Bowes, director of Savingschampion.co.uk, points out you have the option of transferring some or all of your Isa into cash.

In terms of how much can be plied into these accounts in the next 12 months it was announced in last year’s Autumn statement that the Isa subscription limits for the tax year 2015 to 2016 will be £15,240 for Isas and £4,080 for Junior Isas (Jisas).

In November 2014, the government also published draft proposals for the transfer of child trust funds (CTFs) to Jisas. It was subsequently announced that such transfers should be allowed from 6 April 2015, subject to the necessary legislation being put in place by that date.

Extra reliefs

In terms of changes to the type of investments that can be placed in an Isa wrapper, regulations were amended in August 2013 to allow the inclusion of shares admitted to trading on a recognised stock exchange anywhere in the European Economic Area.

This allowed the inclusion of shares admitted to trading on the London Stock Exchange’s Alternative Investment Market, which has led to a variety of questions on their interaction with other tax reliefs and tax incentivised schemes.

Aim shares that have become eligible for Isa inclusion as a result of the amended regulations will remain eligible for enterprise investment schemes, venture capital trusts and inheritance tax business property relief (BPR).

This latter in particular removes assets from an estate for inheritance tax purposes after two years, meaning Isas can be used as an estate planning instrument, subject to assessment of the risks for suitable clients from the smaller companies that form the underlying investments.

Shares that are currently held outside of an Isa which have now become Isa eligible, including those held as part of an EIS or a VCT, cannot be transferred directly into an Isa. The shares must be sold and the proceeds then used to subscribe to the Isa.

The effect of such a procedure is that:

1) For EIS, the sale of the original holding will be a disposal for the purpose of the provisions for withdrawal of EIS income tax reliefs. The new holding will qualify for EIS relief only if it is new shares in a qualifying company.

2) For VCT, the sale of the original holding will be a disposal for the purpose of the provisions for the recovery of VCT tax reliefs. The new holding will qualify only for dividend relief and capital gains tax exemptions under the VCT rules.

3) For BPR, there would be two ownership periods, one for the original holding and one for the ‘new’ holding in the Isa wrapper. Provided the combined ownership period was more than two years, BPR would be available on the replacement holding.

Peer-to-peer

Also in October 2014 the government launched a consultation on how best to include peer-to-peer loans in existing stocks and shares Isas, or whether a new type of Isa should be developed specifically for them.

This consultation, which closed on 12 December, sought views on whether P2P loans should be subject to the same transfer requirements as existing Isa investments, as well as whether they were suitable assets to be held in Child Trust Funds and Junior Isas.

Rhydian Lewis, chief executive of Ratesetter, says peer-to-peer platforms will apply to become Isa managers. Crucially, he says this will allow the platforms to offer the Isa directly to consumers, cutting out the middle man (and thus reducing fees).

Mr Lewis says this is in keeping with the wider ethos of the sector, which bypasses the banks in order to provide consumers with a better deal.

As to what category of Isa this will fall into, Mr Lewis says he was awaiting the decision of HM Treasury, but the industry is rallying around a third type of ‘lending’ Isa being created.

He says: “This will provide a clear separation between cash and stocks and shares Isas but provide a much needed middle ground between low yield cash and higher risk stocks and shares. Therefore it makes sense that it should be treated as a brand new Isa category.

“Research conducted by Ratesetter last year showed that 64 per cent of people with cash Isas only made this choice as they find stocks and shares Isas too complicated.

“In light of this, a wholly separate lending Isa will provide maximum clarity for consumers about what product they are signing up for.”