Budget 2014: New ISA Allowance

Chancellor George Osborne has announced that from the 1st July this year, savers can put up to £15,000 a year into a cash ISA (NISA). 

The current limit is only £11,520 and only half of this can be made up of cash, although all of it can be used for investing. The idea is that the new system will be much simpler. According to the new ISA (NISA) rules, the £15,000 limit can be made up of either cash, investments or both and to any ratio.

Are NISAs any good?

Before we look at the new rules, we look at whether NISAs are any good. It seems that the changes are in keeping with what the public has wanted for some time. However, it’s important to note that when it comes to the crunch, the figures aren’t as good as they first might seem. The limit for a cash ISA has been increased from £5,940 to £15,000 but it’s hard to ignore that cash ISA rates are currently very low, an all-time low in fact. Last year the best buy was 2.5% as opposed to today’s 1.65%

So last year, if you had the maximum cash investment of £5,940 you would have earned £144 a year. At current rates, with a cash investment of £15,000 you would earn £248.

How will the new ISA work?

From July this year, you can pay your money into an ISA following any of these following rules:

  • A cash NISA can be made up of £15,000 cash NISA, with no stocks & shares.
  • Up to nothing but £15,000 of stocks and shares, and no cash.
  • A mix between cash, stocks and shares up to an amount of £15,000.
  • Investors are able to open one cash NISA, plus one stocks and shares NISA to make payments each tax-year. However, you can open other NISAs in order to transfer old ISAS into it.

If you have money that you saved via peer-to-peer lending firms, you can also qualify for a NISA. The Treasury has indicated that this isn’t likely to happen in the next two years as it will go to consultation.

ISAS opened between now and July 1st?

The amount that you can pay into an existing ISA taken out before the 6h April and 1st July will be in keeping with the previous rules whereby you can save a maximum of £11,880 (with up to half being put in as cash). However if you open a ISA between 6th April to 30th June this year, the amount you can save in an Isa will rise, as planned, as it will automatically become a NISA with the higher limit of £15,000 and from 1st July you can pay in up to the £15,000 as and when you wish.

Can I transfer between cash and investments?

You are already able to transfer your current cash ISAs into stock and shares ISAs, but unfortunately you can’t move stocks and shares into cash ISAs. According to the new rules, you will be able to do this both ways with no limit. You can move any amount between the accounts, but if you are moving investments into cash, anything that is paid in between 6th April and 30th June this year will have to be transferred as a whole.

The value of the investment can go down as well as up and you may not get back as much as you put in.

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