Investments made within an ISA wrapper grow free of capital gains tax and income tax and because of the tax benefits are likely to be regarded as an important part of any savings plan.
For years, ISA savers have complained that limits were too low and the ISA investment rules were too inflexible. However, following the announcement in the Budget yesterday, George Osborne has made a real attempt to reward prudent savers with both an increase in the amount that can be invested in ISAs and changes to the way that ISA rules operate.
From 1st July 2014, the Government will merge both cash and shares ISAs into a single New ISA (NISA) with annual tax-free savings limit of £15,000, increased from the present level of £11,520. This can be a combined £15,000 into either cash or investments, or a mixture of both. In addition savers will now be able to transfer previous years’ funds from stocks and shares ISAs into cash, and vice versa. The Government will also abolish the rule that restricts the amount that can be saved in a cash ISA to half the amount that could be saved in a stocks and shares ISA.
But what about ISAs opened between 6 April and 1 July? From 6 April, the amount of money that can be saved in an ISA will increase, to a maximum of £11,880, of which up to half (£5,940) can be put into a cash ISA. From 1 July existing ISAs will automatically become a NISA, with the higher limit and more flexibility. Thereafter, savers will be able to add further money to their cash or stocks and shares NISA, up to the new increased limit of £15,000.
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