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Your ultimate guide to the new ISA rules

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27/06/2014
As the new ISA – or "NISA" – rules come into force, we explain what has changed and how you can benefit.

From 1 July one of the most popular savings products in the UK will undergo a dramatic overhaul.

In his 2014 Budget speech, Chancellor George Osborne’s announced the arrival of the NISA (New Individual Savings Account) which replaces the ISA.

Here’s what will change – and how to make the most of the new rules:

The big differences

To begin with, the annual tax-free allowance – the amount investors are allowed to save or invest each year within a tax-free wrapper – will increase.

Under the old rules, investors could save up to £11,880 a year in a stocks & shares ISA, or up to £5,940 could be held within a cash ISA.

The new rules mean investors can save up to £15,000 a year as a combination of cash, funds or shares.

They can split their allowance in any way they wish – all £15,000 can be in cash, for example – as long as the total amount put into the account during the tax year is below the allowance.

Investors who prefer to keep their cash and stocks and shares ISAs separate will still be able to do so, but they will be limited to one account of each kind.

Investors will also be allowed to move their money freely between cash and stocks and shares. Under the old rules, funds can easily be transferred from a cash ISA to stocks and shares ISA, but going the opposite way meant cashing out and losing the tax advantage.

As of 1 July, this transfer will be able to take place while remaining in the tax-free wrapper. This is applicable to the total amount in the ISA, including money you saved over prior years.

If you do want to transfer funds from stocks & shares into a new cash ISA, contact your provider and have them arrange the transaction. If you try to transfer the funds yourself, any funds you withdraw and then re-deposit in your cash NISA will count towards your 2014/15 allowance even if the money was saved in prior years.

Be aware that any contribution you’ve made since the new tax year – which started on 6 April 2014 – will count towards your current annual allowance.

There’s good news for parents, too. The junior ISA limit, currently £3,840, will rise to £4,000.

While teenagers aged 16-18 will be able to open a cash ISA, they’ll still have to wait until they reach 18 to open a stocks & shares account.

How to make the most of your NISA

Using a few quick tricks you’ll be able to make the most of these new rules.

First and foremost, don’t be intimidated by the high limit, says Ray Tamman of Fairstone Financial Management.

He explains: “Just do what you can and remember that £15,000 is a maximum figure. Having some tax-free savings is better than having none and new ISAs are good vehicles for saving up for a property deposit, money for school or university fees, a wedding or another special event.”

According to Mike Horseman of Cockburn Lucas, a good way to take advantage of the new ISA limit is to take money currently housed in less tax efficient accounts – like a standard savings account – and move it under the ISA umbrella.

Another alternative, he says, is to sell assets which could be liable for capital gains tax – being sure to stay under the current tax-free allowance of £11,000 – and move the proceeds into your NISA.

If you’re thinking about contributing to a stocks & shares ISA for the first time you should consider your motives carefully, says independent financial adviser Stephen Womack.

Never invest just because you can, he says, and be cautious about committing all of your savings in one go. He recommends phasing the money over in increments.

Jonothan McColgan of Combined Financial Strategies adds that you can transfer funds slowly from you pension – one tax wrapper – into a NISA – another. While you have to be wary of how much tax will be charged upon withdrawal, this strategy could allow you to generate additional tax free income in retirement, McColgan says.

Maike Currie of Fidelity Personal Investing notes that you can’t just leave your NISA to languish once it’s set up. Check it regularly – Fidelity recommends every three to six months – to make sure your investments still match your risk appetite.

She says: “The beauty of the new flexible NISA is that it gives investors the ability to invest more money than before in a broader range of investments with the reassurance that if they are worried about the market outlook in the short term they can quickly and easily move into cash and back again without losing the tax advantage of the NISA. Remembering these golden rules will help you to maximise the potential benefits of your NISA.”

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