The New ISA: your questions, answered
A simpler, New ISA has been introduced, bringing with it a significant increase in the yearly allowance. Here, we answer some of the most common questions raised by our clients to help you make the most of the New ISA rules.
How is the New ISA different to the current ISA?
All all existing ISAs and any future contributions fall under the New ISA rules, which are more generous and more flexible than the existing ISA arrangement.
The headline is undoubtedly the significant, £3,120 allowance increase – you can invest up to £15,000 this tax year! When you consider the potential impact this can have on the value of your ISA account over the long term, this is substantial. In fact, even if you discount likely future allowance increases, investing fully into your ISA each year could result in a portfolio worth more than £250,000 in only 12 years. This equates to an additional £50,000 in tax free returns compared with investing the previous £11,880 allowance per year over the same period.*
The new ISA limit can be fully invested into stocks and shares, cash or any combination of the two.
*This figure is based on an investment return of 5% per annum after fees, compounded annually. You should note that investments can go down as well as up and it is possible to get back less than originally invested.
What has happened to cash ISAs and stocks and shares ISAs under the New ISA rules?
You can still invest your ISA in cash which offers a rate of interest, often requiring you to ‘lock in’ your savings for a set period in order to receive the quoted rate.
Alternatively you can invest your ISA in stocks and shares which, simply put, allows you to take control of where your money is being invested in line with your own risk appetite and financial objectives. Although your capital may be at risk, if you’re saving for the longer term stocks and shares ISAs do have the potential to offer higher returns than saving into an ISA as cash.
Can I still transfer ISAs from one provider to another?
Absolutely. If you have ISAs at a provider you are no longer happy with, are looking to consolidate your investments, or want to transfer between cash ISAs and stocks and shares ISAs, the new ISA rules give you total flexibility to do this. Remember, transferring previous tax year ISAs to a new provider does not count as a new ISA contribution, so if you have built up a number of ISAs with several providers over the years, bringing them together under one roof is an easy way to gain control and ensure they keep working in line with your objectives and risk appetite.
Are Junior ISAs changing too?
Like full ISAs, Junior ISAs have enjoyed an increase in their total yearly allowance and you can invest in stocks and shares, cash, or any combination of the two on behalf of a child.
Although it is a more modest boost, from £3,840 to £4,000, the fact that anybody can contribute into a Junior ISA account on behalf of a child makes it possible to collectively build up a significant sum for their future. You can't withdraw money from a Junior ISA until a child turns 18, but investing £4,000 into one year after year would result in a portfolio valued at more than £100,000 on their 18th birthday, assuming an annual growth rate of 5%, although this does not take into account capital losses.
When considering education and property costs, Junior ISAs should be seen as a powerful savings tool for somebody’s future.
Why should I choose Bestinvest for this year’s ISA?
- We were voted Self-Select ISA Provider of the Year at the Investors Chronicle and FT Investment Awards 2013
- Our transparent fee structure and market-leading rates mean you can keep the cost of ISA investing to a minimum
- Invest online in a matter of minutes using your debit card and have the option of investing via monthly Direct Debit
- Choose from more than 2,000 funds as well as a wide range of investment trusts, exchange traded funds and shares listed on the London Stock Exchange
- Benefit from our wide range of free research, tools and guides to help you make informed investment decisions
- Opt for one of our ready-made or managed ISA solutions
- Save up to 5.5% on initial charges by investing with us rather than directly with the fund manager
- Manage your ISA alongside your SIPP and other investments through our secure online service
The value of investments can go down as well as up, and you may get back less than you originally invested. Prevailing tax rates and the availability of tax reliefs are dependent on your individual circumstances and are subject to change.