New ISA rules from April 2024
Following announcements made in the Autumn Statement 2023, new rules will come into effect for individual savings accounts (ISAs) from April this year.
Since launching in 1999, ISAs have offered an excellent route for building up tax-free savings, with different options and regulations introduced over the years.
Allowing savers to set aside ad-hoc sums up to an annual allowance, sheltered from income tax and capital gains tax, it’s no wonder that ISAs are so popular.
Now, changes coming into effect on 6th April 2024 to make ISAs more user-friendly will also make them even more attractive to more people hoping to build their savings – but there are some limitations to be aware of.
Multiple ISA subscriptions
Currently, it’s only possible to subscribe to one of each type of ISA per tax year, but subscribing to multiple ISAs of the same type with different providers will now be allowed – offering much greater flexibility than before.
Savers can pick and choose easy-access or fixed-rate Cash ISAs to suit their needs, and investors can spread investments over several providers. However, all ISA subscriptions are included in the annual allowance of £20,000.
Partial ISA transfers
The current all-or-nothing approach to ISA transfers is that the entire ISA must be transferred if you want to move it to another provider during the tax year. However, the new rules will allow partial transfers between providers.
Savers will be able to transfer any amount they like from one ISA manager to another without having to transfer the entire subscription. For example, if you paid in £10,000, you could move £5,000 to another provider without an issue.
No need to reapply
At present, an ISA account that’s seen as ‘dormant’ – with nothing paid in during the previous tax year – will require reapplication. Effectively, if you don’t pay into your ISA for a year, you have to apply for it again to restart payments.
As an administrative hassle, the government has decided to scrap this requirement. So, if you made no contributions to your existing ISA in the previous tax year, you won’t need to reapply to resume contributions, reducing confusion.
Fractional shares
Though it isn’t concrete yet, the government intends to make it possible to hold fractional shares within a Stocks & Shares ISA. Currently, investors must hold a full share, even though some shares can cost hundreds of pounds.
This will allow investors who would have been priced out of shares to hold fractional investments in an ISA, making it easier for more people to invest in shares. The government should announce more details after running consultations.
Frozen ISA allowances
The maximum tax-free amount that you can save in ISAs each year – the annual ISA allowance – unfortunately will not be increased this year. This means it will stay frozen at £20,000 for Adult ISAs and £9,000 for Junior ISAs.
This allowance can be split across multiple types of ISAs, such as a Cash ISA, Lifetime ISA, Innovative Finance ISA, or Stocks & Shares ISA. However, you must make sure the total across all accounts doesn’t exceed the allowance.
Cash ISA age limit
In line with other ISAs for adults, the age limit for opening a Cash ISA will be set at 18 years old from April 2024. After this, 16–17 year olds will only be eligible for Junior ISAs, and limited to a lower allowance of £9,000 a year.
Under-18s (or their parents) may want to open a Cash ISA before 5th April if they want to benefit from the adult allowance in addition to being eligible for a Junior ISA – a ‘loophole’ that offers a combined allowance of £29,000.
ISAs and tax planning
Though it hasn’t been updated yet, HMRC has an online guide to ISAs for 2023–2024.
As the current tax year draws to a close and the ISA reforms approach, there’s no better time to re-assess your financial strategies for the coming tax year – ensuring you make informed decisions for tax-efficient saving.
Of course, ISA regulations can change at any time, and it can be difficult to choose the right savings option for your personal circumstances.
If you need help with financial planning for your future, including tax planning, it’s a good idea to get professional advice from qualified accountants, who can help you to manage your savings portfolio.
The skilled accountants in Barnsley at gbac would be happy to assist you with savings and tax advice – call 01226 298 298 or email info@gbac.co.uk to find out more.