The Achilles heel for ISAs has always been the modest allowance, as well as the anomaly relating to cash-to-equity transfers, but the Chancellor has now simplified the rules in what has been a radical overhaul of these popular savings accounts.

Britain’s savers now have greater scope to shelter their savings from tax following the planned replacement of the current £11,520 subscription with a higher limit of £15,000 (from 1 July 2014).

Within this new improved allowance investors will have complete freedom to allocate their current ISA portfolio between cash and stocks & shares. This is especially good news for the management of stocks and shares portfolios. Few investors are aware of the ‘grey area’ which exists with current stocks & shares ISA rules. These dictate that cash cannot be held by managers of this category of ISA and that cash can only be held, currently, for a ‘reasonable period of time pending investment’. Under the new rules for ‘New Individual Savings Accounts (NISAs)’, cash can be held within ISAs as a separate asset class in its own right or for strategic asset allocation purposes.
So what are the ‘top tips’ to be considered as we enter this new savings era?

Check your risk levels

Assess where your ISAs are, whether they are cash or stocks & shares ISAs and decide where you want to invest. Do you have cash ISAs languishing with paltry interest rate returns or are you taking too much investment risk? The new regime will allow all investors to have an ISA portfolio which genuinely matches investors’ risk profiles and will – for the first time – permit transfers from equity to cash if needed.

Use it or lose it

The adage ‘use it or lose it’ has never been more applicable to ISA savings. Savers will now be able to accumulate a far larger ISA pot in less time using the new, higher annual savings limit.

Remember the allowance rules

Investors must remember that, once funds have been withdrawn from ISAs, they cannot be ‘replaced’. For example, if £11,520 is saved in an ISA in the current year and then £5,000 is withdrawn, you cannot top your ISA back up to £11,520, as the allowance has already been used.

Maximise inheritance tax exemptions

For those with taxable estates, it’s now possible to invest your accrued ISA portfolio in AIM market listed shares. This means these assets are immediately removed from the scope of inheritance tax once held for a minimum of two years.

Don’t forget the kids!

Whilst the Junior ISA subscription level has not increased proportionately in the same way as its parent, it should not be ignored as a useful, tax-efficient means of savings for future generations.

So what is the future for ISAs?

ISAs have found favour with both sides of the polarised political spectrum and it would be a brave party to reverse the generous increase in ISA allowance limits. However, one option open to future Chancellors is to impose a ‘lifetime cap’ on overall ISA subscriptions. This has been looked at in the past as the current system deprives the Exchequer of receiving valuable tax receipts from millions of investors’ accounts.

Another initiative could be to provide higher ISA allowance levels for accounts which are intended for children’s education. This could operate in a similar way to Long Term Care Annuities for the elderly, whereby the ISA fund would be paid directly to the school or university and, in return, allowance levels would be more generous.

Whatever the future holds for ISAs, the changes announced in the 2014 Budget should be welcomed with open arms.

Patrick Haines is regional head of advice & chartered financial planner at Close Brothers Asset Management