The new ISAs were introduced on July 1st 2014 and they let you save more in a tax free or tax-efficient way. The biggest change is that before July 1st you could only save up to half of the overall ISA allowance in cash, but from July 1st you can save the whole £15,240 (in tax year 2016-17) in cash if you wish to.
Q. Why should I save or invest in an ISA?
A. The new ISA gives you a great opportunity to make the most of your money, according to Unbiased.co.uk, which promotes independent financial advice. Unbiased says that eith the Bank of England hinting that interest rates will rise before the next election and stock markets reaching close to all-time highs, it’s important that savers consider these factors when making their ISA decisions.
Q. How do the new ISAs differ from old ISAs?
A. Minesh Patel, an independent financial adviser with EA Financial Solutions says that previously the amount which could be saved in cash was restricted to 50% of the maximum ISA allowance. Alternatively, the maximum amount could be saved in a stocks and shares ISA entirely.
He says that this rather confusing set of rules has been abolished with the full ISA allowance being able to be saved in either cash or stocks and shares without limits or in any combination.
Q. Are there any rules?
A.Danny Cox, of Hargreaves Lansdown says that investors can still only have one cash new ISA and one stocks and shares new ISA per tax year. The current trend is for a cash ISA to be transferred to a stocks and shares ISA, which he expects will continue until savings rates improve.
Q. What should you do if you’re overwhelmed by the prospect of saving the whole amount?
A.Ray Tamman of Fairstone Financial Management advises that having some tax-free savings is better than having none. He adds that new ISAs are good vehicles for saving up for a property deposit, money for school or university fees, a wedding, or other special event.
Q What should I consider if I am planning on investing in a stocks and shares ISA for the first time?
A.Stephen Womack of David Williams IFA Chartered Financial Planners says that deposit accounts and stock markets are very different beasts. He thinks you should ask yourself why you want to venture into a stocks and shares account. “What are you looking to achieve with the investment and why do you suddenly want to invest in stock markets? If the answer is simply ‘because I can’, I would think carefully before taking the next step.”
He also recommends being cautious about moving big sums from cash to equity markets all in one go. “How bad would you feel if you suddenly saw a 5% dip in the value of your holdings the day following an investment, or a 10% fall over the month following an investment? Instead consider phasing the money into stock markets over a few months.”
Q. How else can I make the most of the new ISAs?
A. Jonothan McColgan of Combined Financial Strategies suggests that the new ISAs could be part of your retirement planning. “The new ISA could be a great place to save for those wanting to take advantage of the new pension rules announced in the chancellor’s budget.”
He explains that UK taxpayers now have the chance to move money gradually into ISAs over the years to make sure they retain some of these tax benefits and even generate additional tax-free income in retirement. “However,” he explains “people need to be careful of how much tax is likely to be charged on the pension withdrawals.”
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