The maximum allowance for Individual Savings Accounts (ISAs) was again increased for the current tax year – rising from £15,000 to £15,240. This came in the wake of substantial reforms to the ISA system, designed to increase flexibility and choice for investors, while providing additional incentives towards long-term saving.
Investors used to be able to save a maximum of half their allowance into a cash ISA, while those who decided to put less than this into a cash ISA could invest the balance into a stocks and shares ISA. However, under new rules introduced from 1 July 2014, investors can allocate their entire allowance of £15,240 across cash, stocks and shares, or any combination of the two. Moreover, they can transfer savings from their stocks and shares ISAs to their cash ISAs, and vice versa. In addition, investors can transfer their ISAs between providers as often as they wish, subject to their providers’ rules.
ISAs are tax-efficient vehicles that allow individuals to save and invest without having to pay income tax or capital gains tax. ISAs can be a good way for people to start saving, or to add to their existing savings and investments. If you cannot afford to take advantage of the full annual allowance, it is still worth putting away what you can via a regular savings plan, which can start from £50 a month. While you are not allowed to hold an ISA with or on behalf of someone else, you can open a Junior ISA for a child under the age of 18.
According to HM Revenue & Customs, around 13 million individuals subscribed to ISAs in the 2014/15 tax year. Although this was lower than the 13.5 million who subscribed in the previous year, the amount subscribed – £79bn – was more than £20bn higher. This suggests subscribers are taking advantage of the increased allowance and greater flexibility to invest more on an individual basis. Average subscriptions in 2014/15 were more than 40% higher than in the previous tax year.