In our last post we summarised the main NISA changes that came into effect on 1st July. Prospective clients of ours always have lots of questions regarding ISAs and we’re sure you do too, so we’ve put together a short Q&A covering the most frequently asked NISA related questions. Please note that many of the questions and answers have been taken from the HMRC PDF ‘The New ISA –Frequently Asked Questions’.
Q: What is the New ISA?
A: From 1st July 2014 all ISAs became New ISAs (NISAs). This applies to all existing ISAs and new accounts opened after 1st July. The Government changed the name to reflect the significantly increased limits and flexibility that will be available to account holders.
The NISA are more generous and offer flexibility to save your NISA annual allowance of £15,000 in cash, stocks and shares or any combination of the two. Under the NISA rules you are also able to transfer previous years’ ISA savings freely between stocks and shares and cash if you wish.
Q: What changed on 1st July 2014?
A: You are now able to split the amount you pay into an ISA between a cash NISA and a stocks and shares NISA as you choose - up to the new overall annual NISA limit of £15,000. Previously, it had only been possible to save up to half of the overall ISA subscription limit in a cash ISA.
Any subscriptions you have made to an ISA since 6th April 2014 will count against the £15,000 NISA subscription limit for 2014/15.
If you have paid into a cash or stocks and shares ISA since 6th April 2014, you will not be able to open a further NISA of the same type before 6th April 2015. You may however make additional payments – up to the £15,000 NISA subscription limit - into your existing account(s) or by transferring those account(s) to another provider that will allow additional amounts to be added.
Q: What is the limit for NISA savers under the age of 18?
A: If you are aged between 16 and 18, you can hold a cash NISA but cannot open a stocks and shares NISA. You can pay up to £15,000 into your cash NISA for the tax year 2014/15. This is in addition to any amounts that you pay into a Junior ISA that you hold.
Q: Can I now have a single NISA for both my cash and stocks and shares investments?
A: Yes, you can now hold cash tax-free within your stocks and shares NISA if you wish and your provider allows this. However, many savers may prefer to hold separate accounts for cash and stocks and shares investments, and can continue to do so.
Q: What were the rules for making deposits to an ISA between 6th April and 1st July 2014?
A: Between 6th April and 30th June 2014, the total amount you could pay into a cash ISA was £5,940. If you had a stocks and shares ISA, you could also pay into that account, but the combined amount you pay into your cash and stocks and shares ISAs could not not exceed £11,880.
Since 1st July 2014 however, you can (if permitted by your account terms and conditions) make additional payments to your cash or stocks and shares NISAs in whatever combination you choose, provided that you do not pay in more than the overall NISA limit of £15,000 within the tax year (6th April 2014 to 5th April 2015).
Any amounts that you paid into an ISA between 6th April and 30th June 2014 will count against your £15,000 NISA subscription limit for 2014/15.
- On 10th April 2014, you paid the maximum amount allowed into a cash ISA (£5,940). You do not want to pay into a stocks and shares ISA in this tax year. From 1st July the limit increased and your account became a cash NISA. Subject to your account terms and conditions, you can add any amount to your account, up to the new limit of £15,000. Therefore, between 1st July 2014 and 5th April 2015, you can pay in a further £9,060 (£15,000 minus £5,940).
- On 20th April 2014, you paid £100 into a cash ISA and £500 into a stocks and shares ISA. From 1st July the limit increased and your accounts became NISAs. Subject to your account terms and conditions, you can add further amounts to either account, provided that your total payments for the tax year do not exceed the new limit of £15,000. Therefore, between 1st July 2014 and 5th April 2015 you can pay in a further £14,400 to your two NISAs (£15,000 minus £600) in any combination that you choose.
- On 1st May 2014, you paid the maximum amount allowed into a stocks and shares ISA (£11,880). From 1st July the limit increased and your account became a stocks and shares NISA. Subject to your account terms and conditions, you can add any amount to your account up to the new limit of £15,000, or open a cash NISA and pay into that account. Therefore, between 1st July 2014 and 5th April 2015, you can pay in a further £3,120 (£15,000 minus £11,880).
Q: Why couldn't I invest my overall ISA limit in cash from 6th April 2014?
A: The new rules applied from 1st July 2014. This was to give ISA providers sufficient time to prepare to apply the new limits from that date.
Q: Why does the ISA subscription year run from 6th April to 5th April, and not on calendar years?
A: This has always been the case since ISAs were introduced, and reflects the fact that as a tax-advantaged account, the ISA year is the same as the tax year.
Q: Does this change only apply for 2014/15, or is it permanent?
A: The new rules apply for amounts paid to a NISA in 2014/15 and in future tax years. Each autumn, the Chancellor usually announces the new ISA limits for the next tax year.
Q: I paid into a cash ISA before 1st July 2014 and this doesn’t allow me to add further payments. What can I do?
A: You should discuss this with your ISA provider. You can only pay into one cash ISA and one stocks and shares ISA in each tax year. So, if you have paid into a cash ISA since 6th April 2014 and the terms and conditions of this account do not allow further amounts to be added, you cannot open another cash ISA before 6th April 2015. However, you may make additional payments by opening a stocks and shares account, or by transferring your cash ISA to another provider that will allow additional amounts to be added. The terms and conditions of your account should make clear whether there are any restrictions on the number of payments that you can make.
Q: I hold a Junior ISA – has the subscription limit changed?
A: Yes. From 1st July the amount that can be paid into a Junior ISA for 2014/15 will increase to £4,000.
Q: New rules on transfers from 1st July 2014. What changed on 1st July 2014?
A: Since 1st July 2014, you are able to transfer amounts you hold in a stocks and shares NISA to a cash NISA. This applies to amounts that you have paid in since 6th April 2014 as well as amounts that you have paid in during previous tax years. As previously, you are also be able to transfer any funds from a cash NISA to a stocks and shares NISA if you wish.
Q: How do I transfer savings from my stocks and shares NISA to cash NISA?
A: You should approach the provider of the cash NISA you wish to transfer your funds to, who will contact the manager of your stocks and shares account to arrange the transfer. You should not withdraw sums from your stocks and shares account yourself in order to deposit it into a cash NISA. If you do, any amount that you pay in may count as a fresh payment against your overall limit of £15,000.
Q: What amounts can be transferred from a stocks and shares NISA to cash NISA?
A: Different rules apply depending upon when you paid the relevant amounts into your stocks and shares ISA.
- If you wish to transfer savings relating to any current year’s payments to your account: (i.e. amounts you have paid in after 6th April 2014), you must transfer these as a whole.
- However, any savings relating to payments to your account in earlier years (amounts you have paid in before 5th April 2014) can be transferred to a cash NISA in whole or in part. Not all ISA providers will allow part transfers, so you should check this with the provider of your stocks and shares NISA when deciding whether to transfer.
Q: Can I transfer savings back again?
A: Yes – you can now transfer between cash and stocks and shares NISAs as many times as you wish.
Q: How long will the transfer take?
A: If you transfer savings from a cash NISA to another cash NISA your transfer must usually be completed within 15 business days of you requesting it. Any other type of account transfer must usually be completed within 30 days of you requesting it.
Q: Can I now have a single NISA for both my cash and stocks and shares investments?
A: Yes, you are able to hold cash tax-free within your stocks and shares NISA if you wish, and your provider allows this. However, many savers may prefer to hold separate NISAs for cash and stocks and shares investments, and can continue to do so.
Q: New rules on NISA investments from 1st July 2014. What changed on 1st July 2014?
A: From 1st July you will be able to acquire the following investments to hold in your stocks and shares NISA:
- Certain Core Capital Deferred Shares issued by a building society;
- Certain securities, such as retail bonds, which have less than 5 years to run to maturity at the time they are first held in your account; and
- Certain investments that do not currently satisfy the current ‘cash-like test’ for stocks and shares ISA - such as some company shares, units or shares in a collective scheme, and some types of insurance policy.
In addition, cash held in stocks and shares NISAs need not be held for the purpose of investing in qualifying investments. Any interest arising on this cash will not be subject to a flat rate charge of 20%.
If you wish to hold any of the above investments in your stocks and shares NISA, you should discuss this with your provider, who will be able to advise further.
Q: Can I hold a peer-to-peer loan or securities offered via crowdfunding platforms in my NISA?
A: The Government intends to enable peer-to-peer loans to be held within NISA and will consult on how to implement this later this year. The Government will also explore extending NISA eligibility to debt securities offered via crowdfunding platforms.
Q: When should I invest?
A: As long as you have not exceeded the current annual ISA allowance limit, you can invest in an ISA at any point during the tax year and, depending on the ISA provider, you can allocate lump sums or monthly contributions that fit around your lifestyle. The earlier and more you add to your ISA, the better. But the crucial thing to remember is that every tax year – which runs from April 6th one year to April 5th the next year – you’re only allowed to invest a certain amount in an ISA. This is known as your annual ISA allowance.
Q: Where can I get an ISA?
A: You can get an ISA only by going to an HMRC approved ISA manager. We buy our ISAs from a fund supermarket but other ISA managers include: banks, building societies, financial advisers, stockbrokers and investment trust companies.
Q: Is it true that some people living in the UK are ISA millionaires?
A: Yes. Scores of people are now ISA millionaires, with £1 million-plus in tax sheltered holdings – including some who have portfolios worth £12 million*. However, most people in the UK are totally unaware that ISAs can help them accumulate a multi-million pound, tax-free portfolio. The people who have become ISA millionaires have achieved this momentous task by religiously investing in ISAs over the long term. And, as each new tax-year arrives, they open up a new stocks and shares ISA to add to their existing ones. By striving for maximum capital growth each and every year, they have managed to accumulate over seven figures tax-free.
Q: What is a self-select ISA?
A: Personally we don’t use these and never have. Self-select ISAs are designed for investors who want to hold individual stocks and are offered by stockbrokers and online share dealing sites. Your annual ISA allowance increased to £15,000 on 1st July 2014.
Please be aware that there will be costs associated with buying and selling stocks. These will be on top of any charge for the ISA wrapper. With stocks and shares ISAs, the old rules said that you could only invest in shares listed on ‘recognised stock exchanges’, however, on July 1st 2013, the Treasury announced new ISA rules and legislation that allowed investment in some small companies listed on the Alternative Investment Market (AIM).
As always, if you have any questions or thoughts on the points covered in this post, please leave a comment below or connect with us @ISACO_ on Twitter.
ISACO specialises in ISA and SIPP Investment and is the pioneer of ‘Shadow Investment’; an easy way to grow your ISA and SIPP at low cost. Together with our clients, we have an estimated £57 million actively invested in ISAs and pensions**. Clients like us because we have a great track record of ‘beating’ the FTSE 100***. Over the last 16 years, we’ve outperformed the Footsie by 60.2% and over the last 5 years, we’ve averaged 14.5% each year versus the FTSE 100’s 8.8%. You can find us at www.ISACO.co.uk.
What is Shadow Investment?
Picking the right fund for your ISA and SIPP is not exactly the easiest job in the world. And knowing 'when' to buy and 'when' to exit is even more difficult! Our ‘Shadow Investment’ Service is here to help. Our service allows you to look over our shoulder and buy the same funds that we are buying.
When we are thinking of buying a fund, we alert you so that you have the opportunity to buy it on the same day that we buy it. We also tell you about when we are planning to exit the fund. You control your investment account, not us. You can start small and invest as little or as much money as you like.
By knowing what we are buying, when we are buying and when we are exiting, throughout the year you can mirror our movements and in effect replicate our trades. This means you have the opportunity to benefit from exactly the same investment returns that we get. Our investment aims are 10–12% per year.
We are totally independent, fully transparent and FCA compliant. We’re warm, friendly and highly responsive and it’s a very personal service that gives you direct access to the Sutherland brothers; ISACO’s two founders.
Who are ISACO’s clients?
Clients who benefit most from our service have over £250,000 actively invested and the majority of them are wealthy retirees, business owners, self-employed professionals and corporate executives. We also have clients from the financial services sector, such as IFAs and wealth managers.
Do you have questions?
To have all your questions answered, call 0800 170 7750 or email us at: info@ISACO.co.uk.
* FT.com: www.ft.com/cms/s/2/836a4c76-d309-11df-9ae9-00144feabdc0.html#axzz2cUuPhGDH.
**November 15th 2012: Internal estimation of total ISA and pension assets owned by ISACO Investment Team and ISACO premium clients.
***Long-term performance: December 31st 1997 - December 31st 2013 ISACO 91.3%, FTSE 100 31.1%. 5 year performance: December 31st 2008 - December 31st 2013. ISACO Investment performance verified by Independent Executives Ltd.