Autumn Budget Contains Limited Good News For ISAS
ISAs are coming up for their 25th birthday, and in his Autumn Budget, Chancellor Jeremy Hunt announced that a nice birthday present for them is in the offing.
Individual Saving Accounts, or ISAs for short, first appeared on the scene in 1999. They were then, and still are now, an excellent way of saving and investing while avoiding having to pay any tax. The upcoming changes, which we discuss a little later on in this new bulleting, are by no means Earth-shattering. But ISAs, having been left alone for far too long, it’s way past time some changes were implemented. Alas, an increase in the ISA allowance is not one of them.
ISAs first appeared on the scene back in 1999. The then Chancellor, Gordon Brown, brought them in to replace PEPs (Personal Equity Plans) and TESSAs (Tax Exempt Special Savings Accounts). The first two types of ISAs launched were the Cash ISA and the Investment, or Stocks and Shares ISA. The ISA allowance (the amount you could save in an ISA in any one tax year) was £7,000.
In the years that followed, four other types of ISAs were created – the Innovative Finance ISA, the Junior ISA, and the Lifetime ISA. The ISA allowance has also been increased. As from the 2017/18 tax year it now stands at £20,000. Regrettably, it has been frozen at this amount through to the end of the 2024/25 tax year.
Perhaps the most significant change to be announced is the ability to be able to pay into the same types of ISA that savers and investors have with different providers. At present, while you can put money into all types of ISA in any one tax year, providing you don’t exceed your £20,000 allowance, you are not permitted to put money into two or more of the same type of ISA. This will change from the 6th of April 2024 (the beginning of the 2024/25 tax year). It will give savers the opportunity to take advantage of the best Cash ISA interest rates by picking and mixing as they so wish.
Another imminent change that has been announced will be the ability to transfer as much as you like from one ISA to another. Currently, you are able to transfer an ISA to one of the same type with another provider or another type of ISA altogether. However, if you have made any contributions in the same tax year during which you want to action a transfer, you have to transfer 100% of that year’s contributions.
As of April 2024, however, you will be able to choose the amount of the current year’s contributions you transfer – the same as with money contributed in previous years. There is one thing to watch out for, though. If you transfer money from a Lifetime ISA to another type of ISA before your 60th birthday, you will have to pay a 25% withdrawal fee.
Transferring money between ISAs should be done through your ISA provider. If you do the process yourself, you have to take money out of its ISA tax wrapper which immediately exposes it to being taxed. If you go through your provider, they use a recognized ISA Transfer process, which ensures the in and out transactions happen simultaneously and thus remain with their tax wrapper surroundings.
As of the 6th of April 2024, those who have Stocks and Shares ISAs will be able to add fractional shares to their investment ISAs. At the moment, these ISAs can only include whole shares. This limits investors’ choice of shares as whole shares in large corporates can cost hundreds of pounds each. But this will change next tax year. The exact details of how this will work have not yet been publicized, but the government has promised to make them known in the near future.
The other upcoming change Mr. Hunt announced in the Autmn Budget is that of raising the age limit at which young people can open a Cash ISA. At present, that age is 16, so it has been possible to make a total contribution in one tax year of £29,000. This comprises the Junior ISA allowance, which is £9.000 per annum, plus the adult ISA allowance of £20,000. However, as of the 6th of April 2024, the minimum age will rise to 18. So, for anyone wealthy enough to afford to donate £29,000 to their child’s ISA, do so by the 5th of April 2024, as after this date, the loophole will cease to exist.
Another ISA negative from the Autumn budget announcement is that the cap of the price of properties you can use a Lifetime ISA (LISA) to help to buy, remains where it is now at £450,000. It has been there since the LISA was introduced back in 2017, and since then, property prices have risen, making it nigh impossible for people to buy in certain higher-priced urban areas.
Outside the world of ISAs, the Autumn budget did carry some good news for UK citizens. National Insurance main rates are to be cut for both employed and self-employed people, and Class 2 NICs are to be abolished, which will help to simplify the tax system.
There was also some good news for pensioners. The pension triple lock is to stay in place – at least for now. It means that pensions will rise from the 6th of April 2024 by a further 8.5%. In addition, some benefits (including Universal Credit) are also due to increase, by 6.7%. However, as regards Universal Credit, the increase comes hand in hand with tougher sanctions. The government will monitor claimants’ attendance at certain initiatives offered by Job Centres, such as job interviews and job fairs.
The Restart Scheme offering, which is currently extended to those out of work for 9 months, will be reduced to 6 months. Finally, Housing Benefit claimants will be offered more help by way of the LHA (Local Housing Allowance) being reviewed to reflect local rental prices.
