ANALYSIS
NEWS
04
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THE INVESTOR
SAVINGS
FURTHER FLEXIBILITY FOR ISAs
The ISA (Individual Savings Account) is undergoing a makeover, with a number of
changes affecting their treatment on death, using them as the first step onto the
property ladder and how younger savers will be able to benefit.
The annual ISA investment limit has been increased to £15,240 this year – or
£30,480 per couple – making them a more valuable allowance. In his March Budget,
Chancellor George Osborne announced that he is planning to make them even more
flexible by allowing investors to make withdrawals, then reinvest, without losing tax
relief, provided they are both made in the same tax year.This is expected to be
implemented in the autumn following consultations with ISA providers.
The government has also confirmed plans to give a one-off allowance to the
surviving spouse following the death of an ISA investor, allowing them to maintain the
tax-efficient status of the investment.The one-off allowance, called an ‘additional
permitted subscription’, is equal to the amount the deceased spouse had in the ISA.The
government estimates that around 150,000 married ISA holders die each year, and the
new rules apply to deaths after 3 December 2014.The measures do not affect any
Inheritance Tax liabilities on estates.
Aspiring first-time house buyers can now get government help through a Help to Buy
ISA, under which the government will add 25% to savings for a deposit, up to a
maximum of £50 per month on a £200 investment.The overall maximum that can be
held in a Help to Buy ISA is £15,000. If the ISA holder saves £12,000, the government
will contribute £3,000. A couple saving for their first house could get a £6,000
incentive between them on savings of £24,000.The maximum house price to qualify is
£450,00 in London and £250,00 elsewhere. Expected to be introduced in the autumn,
savers will have full access to the accounts while they are saving for the deposit.
Younger savers will also benefit from the long-awaited provisions that will allow
money held in Child Trust Funds (CTFs) to be transferred into Junior ISAs. CTFs were
opened automatically for all of the six million children born between 1 September 2002
and 2 January 2011, who were eligible for child benefit. Junior ISAs were launched in
November 2011, but were not available to children who had a CTF.The range of CTF
providers is limited, and the decision to allow them to be transferred to a Junior ISA will
give increased flexibility.
The annual limit for investment into a Junior ISA is £4,080 in the current tax year.
Children will get full access to the funds when they reach 18 so parents have to accept
the risk that they can be used for any purpose. However, they remain a useful addition
to the range of tax-efficient vehicles.
Those who have savings and investments outside ISAs will also receive extra help
with a Personal Savings Allowance, from 6 April 2016, under which basic rate taxpayers
will be able to earn £1,000 of tax-free income per year from savings; or £500 a year for
those with taxable income of between £42,701 and £150,000, the threshold for
additional rate tax. Basic rate taxpayers will be able to earn £1,000, and higher rate
taxpayers £500, of tax-free income from savings.
