Tax-Efficient Savings - That’s NISA!

The investment limits for certain tax-efficient savings accounts have been increased from 1 July 2014. Sarah Laing runs through what’s new in this area.

In the 2014 Budget, the government announced that from 1 July 2014, individual savings accounts (ISAs) would be reformed into a new simpler product - the ‘new ISA’ (NISA) - with equal limits for cash, and stocks and shares.

Between 6 April 2014 and 30 June 2014, individuals could subscribe to an ISA, up to an overall limit of £11,880. From 1 July 2014, all existing ISAs became NISAs and the annual investment limit was increased to £15,000.

Until 30 June 2014, up to one-half of the allowance could be saved in cash with one provider (ie £5,940 for 2014/15). This restriction was removed from 1 July 2014. The NISA offers the option to save the whole NISA allowance of £15,000 in cash, stocks and shares, or any combination of the two.

From 1 July 2014, any money held in stocks and shares NISAs can be transferred to a cash NISA. However, if you wish to make a transfer, you should approach the provider of the cash NISA that you wish to transfer your funds to, who will, in turn, contact the provider of your existing stocks and shares NISA to arrange the transfer. It is important that you do not withdraw sums from your stocks and shares NISA in order to deposit it into a cash NISA yourself - if you do, any amount that you pay in will count as a fresh payment against the overall NISA limit of £15,000.

Different transfer rules will apply, depending upon when you paid into your stocks and shares account. But if you put money into your stocks and shares account between April and July 2014, this sum must be transferred as a whole. Other amounts from previous years may be transferred as a whole or in parts, but not all ISA providers will allow part transfers, so check with your provider first.

Withdrawals may be made at any time without loss of tax relief; but, once a withdrawal is made, a further deposit cannot be made to make up for it once deposits have already been made up to the allowed limits.

Example: Investing and withdrawing funds in the same year

 

Percy (aged 35) invests £6,000 in a NISA on 1 October 2014. In January 2015, he is feeling the post-Christmas pinch and withdraws £2,000. In March 2015, just before the end of the tax year, he decides to top up his NISA by making a further investment. The maximum further investment he can make is £9,000 (£15,000 - £6,000). The amount he has withdrawn is not taken into account.

Husbands and wives, and civil partners, each have their own subscription limits. This means that up to £30,000 a year can be jointly invested in tax-free NISA accounts. Income and gains on the accounts will all be exempt from tax.

From 1 July 2014, Junior ISAs became Junior NISAs and the annual investment limit increased from £3,840 to £4,000 per annum. Junior NISAs are tax-relieved and have many features in common with NISAs – they can be held in any combination of cash or stocks and shares accounts. Although they are only currently available to under-18s who do not have a child trust fund (CTF) account, from April 2015 it will be possible to transfer savings held in CTFs into Junior NISAs. However, it is currently possible to transfer existing CTFs from one provider to another – keep checks on the interest rate currently being paid on CTF accounts and consider moving to another provider if the rate can be improved.

You can open one cash NISA and one stocks and shares NISA each tax-year. However, once open, you can transfer your cash or stocks and shares NISA between providers as many times as you wish. Maximise the amount of interest you receive by keeping an eye on interest rates and making switches between accounts if and when appropriate.