New ISA rules from 6 April 2008
Monday 7 April 2008
The rules for Individual Savings Accounts (ISAs)
changed on 6 April 2008. So what are the new rules and how will
these affect existing ISAs?
What are the changes?
From 6 April 2008:
- The annual ISA investment allowance was raised to £7,200. Up to
£3,600 of this allowance can be saved in a cash ISA (see below).
The remainder of the £7,200 allowance can be invested in stocks and
shares (either with the same or a different provider).
For example, you can save £1,000 in a cash ISA with one provider
and £6,200 in a stocks and shares ISA with a different
provider.
- Savers can now invest in two separate ISAs each tax year; a
cash ISA and a stocks and shares ISA. Mini and Maxi ISA definitions
no longer exist.
- Mini cash ISAs, TESSA-only ISAs and the cash component of maxi
ISAs automatically become cash ISAs.
- Mini stocks and shares ISAs and the stocks and shares component
of maxi ISAs automatically become stocks and shares ISAs.
- Personal Equity Plans (PEPs) automatically become stocks and
shares ISAs.
- ISA savers can transfer money from their cash ISAs to their
stocks and shares ISA (but not vice versa).
How much can you transfer from a cash ISA to a stocks and
shares ISA?
You can transfer some or all of the money saved in previous tax
years without affecting your annual ISA investment allowance. You
can also transfer money saved in the current tax year. In order to
do this you need to transfer the whole amount saved in that tax
year in that cash ISA up to the date of transfer. These transfers
are subject to the terms and conditions of the ISA providers.
You cannot make transfers from stocks and shares ISAs to cash
ISAs.
How will current year transfers from cash ISAs affect the
amount you can pay into an ISA for the remainder of the tax
year?
If you have transferred money from a cash ISA to a stocks and
shares ISA then it is treated as though you had invested the money
directly into the stocks and shares ISA and the cash ISA had never
existed.
Therefore any further subscriptions for the remainder of the tax
year would be subject to the normal subscription limits.
For example, if you had saved £1,000 in a cash ISA and then
transferred it into a stocks and shares ISA, you would be able to
make further investments of up to £6,200 in that tax year. The
whole of this could be invested in the stocks and shares ISA, or
you could invest up to £3,600 in a cash ISA with the balance
available for investment in the stocks and shares ISA.
Richard Wheatley, a Tax Partner at Grant Thornton says: "Care
should be taken if you are transferring into a different ISA. If
you withdraw the money yourself and reinvest it then this will
count against your annual investment allowance. You should
therefore ask the new provider to arrange the transfer for you.
ISAs offer an opportunity to invest in a tax-free way with access
to capital when required. It should be noted that with the stocks
and shares ISA, you may not get back what you put in and some
contracts have penalties if you access the capital ahead of the
agreed period. With the wide range of ISAs on the market it is best
to seek further information prior to investment."
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