With a week to go until the government’s new ISA changes come into effect, unbiased.co.uk, the ‘find an adviser’ search, and its panel of professional advisers have put together a useful guide to help consumers navigate the new rules and make the most of their savings.
1. Why should I save into a new ISA? - unbiased.co.uk:
“The new ISA provides savers with a great opportunity to really make the most of their hard-earned money. It gives people the flexibility to transfer their money between cash and stocks and shares, as well as save up to £15,000 tax efficiently. Whether they have short term savings goals like a holiday, or long term goals like a deposit for a house or even retirement saving, the changes mean everyone has an opportunity to make their ISA work for their savings needs.
“With the Bank of England hinting interest rates will rise before the next election and stock markets reaching close to all-time highs, it’s important that savers consider these factors when making their ISA decisions. Our latest web poll showed the majority of people are planning to hold cash in their new ISA, so savers should remember to shop around for the best rates.
“Investing in stocks and shares can feel overwhelming and we know from our research only a third of people (36%) would be confident in doing this without the help of a professional financial adviser1. But people shouldn’t be put off. Investing can form a key part of your overall savings plan. Those unsure of where to start should seek advice from a whole of market financial adviser who specialises in investment to help them get on track. For a free and confidential search for a whole of market financial adviser, visit www.unbiased.co.uk."
2. How do the new ISAs differ to the old? – Minesh Patel, EA Financial Solutions:
“New ISAs are simplified tax free savings plans in which you can save £15,000 in each tax year per person, making the total for a married couple a generous £30,000.
“Previously the amount which could be saved in cash was restricted to 50% of the maximum ISA allowance. For example, in the last tax year the overall ISA allowance was £11,520 with a maximum of £5,760 being saved in cash and the balance into a stocks and shares ISA. Alternatively, the maximum amount could be saved in a stocks and shares ISA entirely.
“This rather confusing set of rules has been abolished with £15,000 being able to be saved in either cash or stocks and shares without limits or any in combination. Transfers between stocks and shares and cash ISAs are now permissible, whereas the old rules only permitted transfers from cash to stocks and shares ISAs.”
3. Are there any rules? – Danny Cox, Hargreaves Lansdown:
“Investors can still only subscribe to one cash new ISA and one stocks and shares new ISA per tax year, so it’s important to choose providers which offer all the choice, flexibility and security they need. The current trend is for a cash ISA to be transferred to a stocks and shares ISA, we expect this to continue until savings rates improve.
“On 1 July, what we are likely to see in the short term is a few providers offering “super” new ISAs with stocks and shares and cash options. There has been little time to organise products since the Budget announcement, so most providers will offer a cash new ISA and stocks and shares new ISA separately with the higher £15,000 limits.”
4. How can I make the most of the increased £15,000 allowance? – Mike Horseman, Cockburn Lucas:
“People should look to make the most of the more flexible £15,000 ISA allowance by committing funds from either less tax efficient or flexible savings structures, or by switching funds earmarked for pensions savings into an ISA due to reduced contribution levels.
“Another alternative for people is to sell assets which are liable to capital gains tax up to personal allowances, then re-deploy these funds into a new ISA wrapper.”
5. What should you do if you’re overwhelmed by the prospect of saving £15,000? – Ray Tamman, Fairstone Financial Management:
“Just do what you can and remember it is a maximum figure. Having some tax-free savings is better than having none and new ISAs are good vehicles for saving up for a property deposit, money for school or university fees, a wedding, or other special event.
“Any taxpayer with money in normal savings accounts should be looking into moving funds into new ISAs to save paying 20% tax or more on their current savings interest. You can pay into a new cash ISA and a new stocks and shares ISA with different providers in the same tax year; up to £15,000 across both accounts.”
6. What should I consider if I am planning on investing in a stocks and shares ISA for the first time? – Stephen Womack, David Williams IFA Chartered Financial Planners:
“Deposit accounts and stock markets are very different beasts. Ask yourself why you want to venture into a stocks and shares account. What are you looking to achieve with the investment and why do you suddenly want to invest in stock markets? If the answer is simply ‘because I can’, I would think carefully before taking the next step.
“Be cautious about moving big sums from cash to equity markets all in one go. How bad would you feel if you suddenly saw a 5% dip in the value of your holdings the day following an investment, or a 10% fall over the month following an investment? Instead consider phasing the money into stock markets over a few months. Most equity ISA providers have a cash account facility where the funds can be parked pending gradual investment.”
7. How else can I make the most of the new ISAs? – Jonothan McColgan, Combined Financial Strategies
“The new ISA could be a great place to save for those wanting to take advantage of the new pension rules announced in the chancellor’s budget. You build up a pension over your life, getting upfront and ongoing tax relief. Now UK taxpayers have the chance to move money gradually into ISAs over the years to make sure they retain some of these tax benefits and even generate additional tax free income in retirement. However, people need to be careful of how much tax is likely to be charged on the pension withdrawals.”
Notes to editors:
1 unbiased.co.uk commissioned Opinium Research to carry our research between 8–11 October 2013 among 2,000 nationally representative UK adults aged 18+
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