Something else for the savers

The other surprise announcement was in respect of ISAs. Successive governments, concerned at the relatively low level of savings in the UK economy have over the years introduced various means by which individuals can save through a tax-free environment.

Individual Savings Accounts (ISAs) were introduced in April 1999 and the government has confirmed that ISAs are a permanent feature of the savings landscape.

What is an ISA?

ISAs are tax-exempt savings accounts, generally available to individuals aged 18 or over who are resident in the UK. ISAs are only available to individual investors and cannot be held jointly.

Investment limits

From 6 April 2014 the overall ISA savings limit is £11,880 of which up to £5,940 can be invested in cash. In Budget 2014 the Chancellor announced that from 1 July 2014 ISAs will be reformed into a simpler product, the 'New ISA' (NISA) and all existing ISAs will become NISAs.

From 1 July 2014 the overall annual subscription limit for these accounts will be increased to £15,000 for 2014/15. Special rules apply if investments are made before 1 July 2014. Investments for 2014/15 cannot exceed £15,000 in total.

Savers will also be able to subscribe this full amount to a cash account (currently only 50% of the overall ISA limit can be saved in cash). Under the NISA, investors will also have new rights to transfer their investments from a stocks and shares to a cash account.

Investment choices

ISAs are allowed to invest in cash (including bank and building society accounts and designated National Savings), stocks and shares (including unit and investment trusts and government securities with at least five years to run) and life assurance.

There are also changes to the rules on the investments that can be held in a NISA, so that a wider range of securities are available. This will include certain retail bonds with less than five years to maturity. In addition, Core Capital Deferred Shares issued by building societies will become eligible to be held in a NISA, Junior ISA or Child Trust Fund (CTF).

Tax advantages

The income from ISA/NISA investments is exempt from income tax. However the tax credits on any dividends are not reclaimable.

Any capital gains made on investments held in an ISA/NISA are exempt from capital gains tax.

Uses of an ISA

Many people use an ISA in the first instance, to save for a rainy day. Since they were first introduced people have used them to save for retirement, to complement their pension plans or to save for future repayment of their mortgage to give just a few examples.

If this is an area where you require any further advice please do contact us.