Flexible tax-free savings - the new ISAs

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Individual Savings Accounts (ISAs) entered a new phase from 1 July 2014. Previously, ISA contributions for the 2014/15 tax year were capped at £11,880. The entire amount can be invested in a stocks and shares ISA, or up to £5,940 can be saved into a Cash ISA.

However, from 1 July 2014, the 'New ISA' (NISA) limit increased to £15,000 and individuals can invest as much as they like of this allowance in cash, stocks and shares or a combination of the two. Investors will also be able to transfer ISA savings from previous years freely between stocks and shares and cash.

This means that from 1 July, an individual could have just one NISA, rather than separate NISAs for cash and stocks and shares. This simplicity might be attractive to some investors although, it should not be assumed the best rate of interest will be received on the cash element and it might be worth having a separate cash NISA to secure a competitive rate.

NISAs can also be freely transferred between providers - subject to any penalties that might be applied by your existing provider - but only one new cash NISA and one new stocks and shares NISA can be opened in each tax year.

Any ISA subscription made between 6 April and 30 June 2014 will be counted against the £15,000 NISA subscription and individuals are not allowed to open up a new NISA for the current tax year from 1 July. Instead, the existing account needs to be topped-up. The provider's terms and conditions need to be checked too; particularly if a fixed-rate cash ISA has already been opened.

The range of investments that can be held within a NISA is wide and advice should be sought about what is right for each individual. At the end of each tax year, any unused allowance is lost so it makes sense for the allocation to be used if possible.

Alan Boby
Ellacotts LLP


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