Are NISAs nicer? How the new ISAs work

Investing

MoneyPlus Features Team

28th July 2014 at 4:23pm

New ISA rules were introduced last month, giving savers more flexibility and a larger tax-free allowance than ever before. Four out of 10 people told the consumer organisation Which? they would save more as a result of the annual limit increasing to £15,000, up from £11,880.

 

ISAs have been the main way to save tax free in a cash ISA and invest in a tax-efficient manner in a stocks and shares ISA for 15 years. Over this time, more than 23 million people have opened ISAs totalling over £440 billion, according to HMRC.

All change for ISAs

The increase in the total amount you can save in what are now called New Individual Savings Accounts (NISA) is not the only change. Since July:

  • You can decide how you want to split the £15,000 between the cash and stocks and shares parts of a NISA
  • Or you can put the whole £15,000 into either a cash or stocks and shares NISA. Previously you could only put up to half the annual ISA allowance into a cash ISA.
  • You can move your money from a stocks and shares NISA into a cash NISA, or vice versa. Previously you couldn’t move money from a stocks and shares ISA into a cash ISA.

It is hoped that the new flexibility and higher limit Over this time, more than 23 million people have opened ISAs totalling over £440 billion, according to HMRC.will encourage more people to open a NISA. Their advantages are:

  • You pay no tax on the interest you earn in a cash NISA
  • With a stocks and shares NISA you pay no capital gains tax on any profits and no tax on interest earned on bonds. The dividends paid on shares or funds do have the basic rate of 10% tax deducted. This means that higher and additional rate taxpayers don’t have to pay their higher rate of tax on their dividend payments.  

It’s never too late to start saving

People have told us that they find it easier to save if they set a savings goal, such as paying for a wedding or for a deposit to buy their home.

If you’ve already paid into an ISA in this tax year you can top it up to the new limit if your provider allows it – each account provider will have different deadlines by which date all requests to increase their savings must be processed, so it’s worth checking with them.

If you want to add more money and your provider You can move your money from a stocks and shares NISA into a cash NISA, or vice versa. Previously you couldn’t move money from a stocks and shares ISA into a cash ISA.doesn’t allow it, you can transfer your existing cash ISA to another provider that does allow top ups. Check first whether there are any penalties for transferring to another provider.

Another alternative for those who opened a cash ISA at the start of the tax year is to open a stocks and shares NISA to use the rest of their allowance. Remember, you are only allowed to open one cash and one stocks and shares NISA in one tax year. Anyone with cash ISAs from previous years should make a note to check you are on the best interest rate each year.

Those looking to invest in a stocks and shares NISA might want to seek advice from a regulated financial advisor to help them decide the level of risk they are prepared to take.

This article is provided by the Money Advice Service.