NEW NISA RULES

The tax-free NISA allowance is now £20,000 per person, per tax year (from April 2017). This article explains how the new ISA rules work, how they differ to the old ISAs, and why you should maximise your ISAs now rather than waiting until the end of the tax year (the “ISA season”).

Key points:

  • How the New ISA rules are different to the old ISAs
  • Why you should maximise your NISA limits now
  • What next for your ISAs and other investments?
  • Get our investment checklist

How the New ISA rules are different to the old ISAs

NISA means New ISA (Individual Savings Account). In effect, the NISA rules are just an update on the old ISAs. Don’t ask me why the Government changed the name – there really was no need.

ISAs become NISAs

Now, all ISAs have been converted into NISAs. This includes all previous tax-free savings such as PEPs and TESSAs.

An end to cash or shares ISAs

Under the old ISA rules you had to make a choice between saving into cash (a cash ISA) or stocks and shares, or bonds (a shares ISA). Helpfully, under the NISA rules, effectively this distinction has been removed. Now the choice is more about how much risk you are prepared to take with your money.

Increased ISA limits

You are now permitted to save up to £20,000 per person per tax year into your account under the New ISA rules (from April 2017).

Your ISA grows largely free of capital gains tax and income tax. Over time this can be of huge benefit to you, and it makes sense to maximise your ISA savings where you can.

“The ‘ISA season’ starts as soon as possible after the start of the tax year – not at the end. You should maximise your tax-free savings now.”

No restriction on cash savings

Under ISAs the maximum you could save into a cash ISA was half the allowance, with no restriction on shares. Now, you can invest up to the NISA limit in cash or shares, in whatever proportion you want.

All your savings in one New ISA

Previously, you could hold a cash ISA with one provider, and a shares ISA with another. Now, since there is no restriction on cash savings within your ISA, you can hold one ISA account per tax year which contains both cash and shares. You can still transfer your NISA savings under the rules to a new provider.

Transfers from shares to cash permitted

Under ISA rules you could transfer your cash ISA to a shares ISA, but not the other way. Now, you can move money within your account from shares to cash as you choose. Just bear in mind that some investment companies won’t permit you to hold cash in their ISA as they are not set up for this.

Additional investments permitted

The ISA rules have been relaxed to allow additional investments into your account. This has been done to remove the distinction between cash and sharesNISAs. Product providers may still only allow cash or shares in their products though!

Flexible ISAs

From late 2015, the rules should be changed to permit you to withdraw ISA funds and then reinvest later in the tax year without losing your allowance.

Why you should maximise your ISA limits now

The financial services industry commonly calls the run up to the end of the tax year on the 5th of April “ISA season”. Presumably this will now become “ISA season” with inevitable puns to follow.

This is because there tends to be a scramble to use up your ISA allowance before it is lost. When a new tax year starts, if you have not used your ISA allowance from the previous tax year this is lost.

We believe that you should maximise your ISA limit as soon as you can. That means using your ISA allowance at the start of the tax year (in April) rather than at the end of the tax year (in March). If you think about it, if you leave your NISA savings until the end of the tax year, you lose a whole year of tax-free savings. Over time this could cost you thousands of pounds.

How do we help you to maximise your ISA limits?

Under our Investment Management service with your agreement, we transfer money from your taxable investments to your ISAs, handling all the paperwork for you along the way. This comes at no extra cost, and means that you maximise the tax-efficiency of your investments as soon as possible, boosting your returns over time. This kind of efficiency is an example of the kind of thing you are less likely to do on your own. We just handle it for clients. In fact, since the ISA limits increased twice this tax year, we have been through this process twice already for clients at no extra cost to them.

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Dan Woodruff

Certified Financial Planner & Chartered Wealth Manager at Woodruff Financial Planning
Financial Planning helps you to navigate and anticipate significant life changes. I want to help you to ensure your money is managed wisely to give you the financial security that will fund the future and lifestyle that is important to you.

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