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The ISA are about to celebrate their 25th birthday and in his Autumn Budget, Prime Minister Jeremy Hunt announced that a great birthday gift for them is on the horizon.
Individual savings accounts, or ISAs for short, first appeared in 1999. They were, and still are, a great way to save and invest while avoiding paying any tax any. The upcoming changes, which we will discuss later in this new piece of news, are by no means Earth-shattering. But the ISA has been neglected for so long that it’s time some changes were made. Alas, increasing ISA allowances is not one of them.
ISAs first appeared in 1999. The then Prime Minister Gordon Brown introduced them to replace PEPs (Personal Equity Plans) and TESSAs (Tax-Exempt Special Savings Accounts). The first two types of ISAs offered are Cash and Investments ISAs, or Stocks and Shares ISAs. The ISA allowance (the amount you can save in an ISA in any tax year) is £7,000.
In the following years, four other types of ISAs were created – the Innovate Finance ISA, the Foundation ISA and the Lifetime ISA. ISA allowances have also been increased. As of the 2017/18 tax year, this amount now stands at £20,000. Unfortunately this amount has been frozen until the end of the 2024/25 tax year.
Perhaps the most important change announced is the ability to pay into the same ISA that savers and investors have with different providers. Currently, while you can put money into all types of ISAs in any tax year, as long as you don’t exceed your £20,000 allowance, you’re not allowed to put money into two or more types ISAs are the same. This will change from 6 April 2024 (start of the 2024/25 tax year). It will give savers the opportunity to take advantage of the best cash ISA interest rates by picking and mixing as they wish.
Another impending change that has been announced will be the ability to transfer as much as you want from one ISA to another. Currently, you can switch your ISA to one of the same type as another provider or to a different type of ISA altogether. However, if you made any contributions in the same tax year you want to make the transfer, you must transfer 100% of that year’s contributions.
However, from April 2024, you will be able to choose how much of the current year’s contributions you transfer – just as you would have contributed in previous years. However, there is one thing to note. If you transfer money from a Lifetime ISA to another type of ISA before your 60th birthday, you will pay a 25% withdrawal fee.
Transfers between ISAs must be made through your ISA provider. If you go through this process yourself, you have to take the money out of its ISA tax plan, which immediately makes it taxable. If you go through your provider, they will use a recognized ISA Transfer process, which ensures inbound and outbound transactions happen simultaneously and therefore leaves the tax package intact their.
From 6 April 2024, those with a Stocks and Shares ISA will be able to add fractional shares to their investment ISA. Currently, these ISAs can only cover whole stocks. This limits investors’ stock choices as entire shares of large corporations can cost hundreds of pounds each. But this will change in the next tax year. Exact details about how it will work are yet to be announced, but the government has promised to release them in the near future.
Another upcoming change Mr Hunt announced in the Autumn Budget is raising the age limit at which young people can open a cash ISA. Currently, that age is 16, so a total of £29,000 can be contributed in a tax year. This includes a child ISA allowance of £9,000 per year, plus an adult ISA allowance of £20,000. However, from April 6, 2024, the minimum age will increase to 18. So for anyone wealthy enough to donate £29,000 to their child’s ISA, do it first April 5, 2024, because after this date, the vulnerability will no longer exist.
Another ISA negative from the Autumn budget announcement is that the price cap on assets that you can use a Lifetime ISA (LISA) to help buy, remains at the current level of £450,000. It has existed since LISA was introduced in 2017, and since then property prices have increased, making it almost impossible for people to buy in some higher-priced urban areas.
Outside the world of the ISA, the autumn budget brought some good news for UK citizens. National Insurance core rates will be cut for both employed and self-employed people, and Class 2 NICs will be abolished, which will help simplify the tax system.
There’s also some good news for retirees. The triple pension lock will remain in place – at least for now. That means pensions will increase by 8.5% from April 6, 2024. Additionally, some benefits (including Universal Credit) are also due to increase, rising by 6.7%. However, for Universal Credit, this increase comes with tougher sanctions. The Government will monitor applicant attendance at certain initiatives launched by the Jobcentre, such as job interviews and job fairs.
The Restart scheme, which is currently being extended for those who have lost their jobs for nine months, will be reduced to six months. Finally, Housing Benefit claimants will receive more help through the LHA (Local Housing Allowance) which is being reviewed to reflect local housing rents.
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