Since the start of the new tax year on 6 April, the rules for Individual Savings Accounts (ISAs) have changed. As a result, ISAs have become more flexible. Here’s what you need to know about ISA investing in the current tax year.
First of all, the most important things have stayed the same. The ISA is still an efficient way to save and invest, as you don’t pay tax on the returns you make from it. And the annual ISA allowance hasn’t changed either. You can still put up to £20,000 into ISAs each tax year.
Up to £4,000 of this can go into a lifetime ISA – a special kind of ISA in which your investment is locked up until you want to buy a home or retire. Meanwhile, you can add up to £9,000 to a child’s junior ISA every year.
So what has changed? Well, there’s a new age limit for cash ISAs, some new flexibility for moving assets between your ISAs, and two new types of investment that you can access through an innovative finance ISA.
Paying into more than one ISA
Perhaps the most significant change is that you can now pay into more than one ISA of the same type in any given tax year.
Previously, you were only able to put money into a single ISA of each type in one year. This meant that you couldn’t start paying into a different one if you found a better interest rate or a more attractive investment option.
Now, for example, you can put money into two different types of stocks and shares ISAs in one tax year. This can be useful when a new opportunity arises. So, if you have already invested in a global stocks and shares ISA but think that the prospects for the UK stock market have improved, there’s now nothing to stop you putting some money into a UK-focused ISA too.
The new flexibility is likely to prove particularly relevant to cash ISAs. Investors will now be able to put money into an ISA with a higher interest rate even if they’ve already put some money into a different cash ISA earlier in the same tax year. Ultimately, this change should benefit astute savers and investors.
The new freedom does not apply to lifetime ISAs, however. As before, investors are limited to using just one lifetime ISA in a single tax year.
Transferring between ISAs
You can also now transfer any amount from one ISA provider to another. Previously, you had to transfer the entire ISA allowance for the current year. Now, however, you can keep some of your balance with your old provider while transferring the rest to a new provider
Again, this gives you greater flexibility to move money between your tax-free investments and to take advantage of new opportunities as they arise.
Investing in new assets
Another change broadens the scope of innovative finance ISAs. Previously, these ISAs allowed people to invest in a small range of alternative asset classes – essentially, peer-to-peer loans.
Now, however, innovative finance ISAs can include two additional types of investment: long-term asset funds and open-ended property funds.
Long-term asset funds back projects with long timelines, such as infrastructure or property developments. Open-ended property funds invest in portfolios that can include assets such as office blocks, warehouses, shopping centres and housing.
This expanded range of investments could help to make these ISAs more attractive. At present, only a small number of investors use innovative finance ISAs, so this change can be seen as an attempt to increase their popularity with savers and investors.
No need to reapply
A more minor change is that you now don’t have to reapply for an existing ISA if you haven’t paid anything into it in the previous tax year. So, if you have a dormant ISA or two, you now can go straight back into paying into them without any fuss.
This is a small change, but it’s certainly a welcome one – if only on the grounds of ease and efficiency.
The age limit goes up
The changes aren’t all good news – at least not if you’re young. The minimum age for cash ISAs has been raised from 16 to 18. This brings it in line with the minimum for the other types of adult ISA (stocks and shares, innovative finance and lifetime).
So, if your children are 16 or 17, they’ll have to stick with their junior ISAs for a little bit longer. But if they already have adult cash ISAs, they’ll still be able to keep them.
What this means for you
The five changes to ISAs aren’t earth-shattering. But, overall, they do make ISAs a simpler and more flexible way to save and invest. They can be seen as part of the ongoing development of ISAs, which have steadily evolved to allow people to invest more of their money tax free and in a growing number of different ways.
Investment Risks
The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Gearing is used for investment purposes to obtain, increase or reduce exposure to an asset, index or investment. The use of gearing can enhance returns to investors in a rising market, but if the market falls the losses may be greater.
