From Saturday 6th April 2024, savers can now pay into as many ISAs as they like, from the 2024/25 tax year. Previously, this was limited to one cash ISA, and one stocks and shares ISA per year. This change excludes the Lifetime ISA.
An ISA is protected from tax and savers can transfer from one ISA provider to another or withdraw cash at any time, subject to providers rules.
Although savers and investors can open and subscribe to as many stocks and shares, cash, or innovative finance ISAs, across as many providers as they wish, the total subscriptions across all providers must remain within the £20,000 ISA limit per tax year and onus will still be on individual saver to make sure they do not exceed this.
A Cash ISA
If you need a specific sum of money in the near future, or want a tax efficient home for an Emergency savings fund, cash is often the most sensible option. Cash ISAs also make sense for those who want to access their money for short-term goals within the next one to five years.
If you need to be sure money is easily available within a year, an easy-access cash ISA is a good option. And if your cash need is longer than a year you can afford to lock it in a Fixed rate cash ISA. These tend to be for between 2 – 4 years and typically will have a slightly lower rate of interest the longer the Fixed Rate period.
The change should make the rates offered by cash ISA provides more competitive and will make it easier for savers to choose the best ISAs for them.
The capital and accumulated interest is protected if something was to go wrong with a provider, up to £85,000 with each firm, by the Financial Services Compensation Scheme (FSCS).
Stocks and shares ISA
These are for the medium to longer term (5 years or more) and tend to be for those wanting to take more risk than cash, as the value will fluctuate. There is no guarantee that you will get back even the money you paid in, although there the availability to invest in a wide range of assets, such as equity funds, government and corporate debts, property, commodity funds and many more areas to hopefully get returns, over the longer period, that may provide good growth, all of which is tax free.
If you are putting money aside for the long term, stocks and shares investments offer the opportunity of beating inflation and delivering growth in comparison to cash.
The tax benefits of a stocks and shares ISA has become even more important, as the capital gains tax-free allowance has been slashed from April 2023 from £12,300 to £6,000, to £3,000 and now the dividend tax-free allowance on 6th April 2024 has reduced to just £500.
At Circle Financial Services we offer a Wealth Management service to help you plan, and invest, providing all the help and advice to navigate you through the very complex world of investments, so please do not hesitate to get in touch if you feel we can help.
Author: Maya Kodikara – NHS Pension Specialist and Wealth Management IFA