Five big ISA changes you should know about in 2016
ISA change 1
New help to Buy ISA
From 1 December, the new Help to Buy ISA offers first time buyers the opportunity to save into a cash ISA where the government will add 25% of the amount saved at the point a property is purchased (to a maximum of £3,000 on £12,000 saved). Up to £1,200 can be saved in the first month with £200 per month thereafter. You cannot save into a Help to Buy ISA and a cash ISA in the same tax year unless under a split or umbrella ISA type scheme.
Danny Cox, chartered financial planner at Hargreaves Lansdown, says:
“The current deals available on Help to Buy ISA including the Halifax at 4% make them an easy decision for first time buyers, whether planning to buy a house or not. For those wishing to save more and for 5 years or longer, running a regular savings stocks and shares ISA alongside provides a riskier but potentially more lucrative supplement.”
ISA change 2
New Innovative Finance ISA
Peer-to -peer investments and crowd funding debt securities will be available through a new, third way, Innovative Finance ISA – an investment ISA specifically being launched for these alternative finance products from 6 April 2016.
Cox says: “P2P investments are not a cash equivalent as they have risk to both interest income and capital. Whether any or all of these new qualifying investments will be appropriate, the new wider investment options act as a timely reminder to review your ISAs to ensure you have the right mix of cash and investments to meet your goals and objectives.”
ISA change 3
ISA benefits can now be passed on to spouses (deaths on or after 3 December 2014)
ISA tax benefits can now be passed on to a spouse upon death. With 150,000 married ISA savers passing away each year, this change has removed a quirk of the tax system which was the source of deep frustration and additional cost for surviving spouses.
In the Autumn Statement, Chancellor George Osborne announced that the ISA status will be maintained for ISA investments during the estate administration period.
Cox says: “The current system is somewhat clunky but made sense given the speed at which it was implemented. There is still considerable confusion on the workings of the Additional Permitted Subscription among investors and some providers alike. The way forward is simplification to include making the period between the date of death and distribution tax free.
“This change isn’t without its challenges. ISA tax reliefs are granted to individuals – it’s an Individual Savings Account after all – but after death the tax reliefs would have to be granted to representatives.”
The change is expected from April 2016. Further details will be in secondary legislation after a technical consultation with ISA providers.
ISA change 4
Announced in the March Budget of 2015, from April 2016, ISAs will be able to offer the flexibility to allow savers to withdraw and replace their savings within the same tax year without losing the ISA tax benefits. This allows savers the opportunity to use their ISA savings to cover short term capital needs, but replace them in time to retain the tax benefits.
Stocks and shares ISA providers can also allow this facility if the flexible options are made via a cash trading account.
ISA change 5
No restrictions on transfers between ISA
Investors should use the increased transfer flexibility to ensure they have the right mix of ISA savings and investments. Stocks and shares ISA can now be transferred to cash ISA giving savers and investors the full flexibility to move their ISA savings into the account which suits them best.
Most HL investors hold around 25% cash and 75% stocks and shares, although nationally the reverse is true with 80% of accounts subscribed to in the 2014/15 tax year being cash ISA. Cash is important to meet short term savings and provide an emergency fund. However the stock market is likely to give you a better return over the longer term.
Transfers of cash ISA to stocks and shares ISA remain highly popular. Of the transfers into the HL Vantage Stocks & Shares ISA in 2015, 54% were of cash ISA, with poor rates of return a key reason for transferring.
Since 6 April 2015, Child Trust Funds can be transferred to Junior ISA but not the other way around.