The ISAs are approaching their 25th birthday, and in his Autumn Budget, Chancellor Jeremy Hunt announced that a nice birthday present for them is on the horizon.
Individual Savings Accounts, or ISAs for short, first appeared on the scene in 1999. They were then, and still are, a great way to save and invest while avoiding having to pay any tax. The upcoming changes, which we will discuss a little later in this new newsletter, are by no means earth-shattering. But ISAs, having been on their own for too long, are about time for some changes to be implemented. Unfortunately, an increase in the ISA subsidy is not one of them.
ISAs first appeared on the scene in 1999. The then chancellor, Gordon Brown, brought them in to replace PEPs (Personal Equity Plans) and TESSAs (Tax-Exempt Special Savings Accounts). The first two types of ISA launched were the cash ISA and the investment or stocks and shares ISA. The ISA allowance (the amount you could save in an ISA in any tax year) was £7,000.
In the following years, four further types of ISAs were created: the Innovative Finance ISA, the Junior ISA and the Lifetime ISA. The ISA allowance has also been increased. As of the 2017/18 tax year, this now amounts to £20,000. Unfortunately, it has been frozen at this amount until the end of the 2024/25 financial year.
Perhaps the most significant change to be announced is the ability to be able to pay into the same types of ISAs that savers and investors have with different providers. Currently, while you can put money into all types of ISAs in any tax year, as long as you do not exceed your £20,000 allowance, you are not allowed to put money into two or more of the same type of ISAs. This will change from April 6, 2024 (the start of the 2024/25 financial year). It will give savers the opportunity to take advantage of the best Cash ISA interest rates by choosing and combining as they wish.
Another imminent change that has been announced will be the ability to transfer as much as you want from one ISA to another. Currently, you can transfer an ISA to one of the same type with another provider or to another type of ISA entirely. However, if you have made any contributions in the same tax year during which you want to make a rollover, you must roll over 100% of that year’s contributions.
However, starting in April 2024, you’ll be able to choose how much of the current year’s contributions you’ll roll over, just like money contributed in previous years. However, there is one thing to keep in mind. If you transfer money from a lifetime ISA to another type of ISA before you turn 60, you will have to pay a 25% withdrawal fee.
Transferring money between ISAs must be done through your ISA provider. If you do the process yourself, you’ll have to take the money out of your ISA tax wrapper, which immediately exposes you to tax. If you use your provider, they use a recognized ISA transfer process, ensuring that inbound and outbound transactions occur simultaneously and therefore remain in your tax wrapper environment.
From 6 April 2024, those with Stocks and Shares ISAs will be able to add fractional shares to their investment ISAs. At the moment, these ISAs can only include whole stocks. This limits investors’ choice of shares, as entire shares of large companies can cost hundreds of pounds each. But this will change next fiscal year. The exact details of how this will work have not yet been made public, but the government has promised to release them in the near future.
The other upcoming change Hunt announced in the autumn budget is to increase the age limit at which young people can open a cash ISA. Currently, that age is 16, so it has been possible to make a total contribution in one tax year of £29,000. This comprises the youth ISA grant, which is £9,000 per year, plus the adult ISA grant of £20,000. However, starting April 6, 2024, the minimum age will increase to 18 years. Therefore, for anyone wealthy enough to donate £29,000 to their child’s ISA, please do so by April 5, 2024, as after this date the minimum age will rise to 18. The legal vacuum will cease to exist.
Another negative aspect of the ISA from the autumn budget announcement is that the property price cap that a lifetime ISA (LISA) can use to help buy remains where it is now, at £450,000. It has been there since the LISA was introduced in 2017, and since then, property prices have risen, making it almost impossible for people to buy in certain higher-priced urban areas.
Outside of the ISA world, the autumn budget brought good news for UK citizens. The main National Insurance rates will be reduced for both employees and the self-employed and class 2 NICs will be abolished, helping to simplify the tax system.
There was also good news for pensioners. The triple blocking of pensions will remain in force, at least for now. This means that pensions will increase from April 6, 2024 by another 8.5%. In addition, some benefits (including Universal Credit) should also increase, by 6.7%. However, when it comes to Universal Credit, the increase comes hand in hand with tougher penalties. The government will monitor applicants’ attendance at certain initiatives offered by employment centers, such as job interviews and job fairs.
The Restart Scheme offer, which currently extends to those who are unemployed for 9 months, will be reduced to 6 months. Finally, housing benefit claimants will be offered further help by revising the LHA (Local Housing Allowance) to reflect local rental prices.
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Source: vtt.edu.vn