6 things you must know about the new £15,000 ISA
That's because from 1 July, your annual tax-free savings allowance has been upped to £15,000, allowing you to protect even more of your money from the taxman.
Isa rules have also been simplified from that date.
Yet out of 10 people are confused by the new rules, according to research from stockbrokers TD Direct. So here's what you need to know.
1. Isa IS now Nisa
From 1 July, all existing ISAs will transform into the new 'super' NISA. The NISA limit is now £15,000 a year, upped from £11,880. Yet despite all the hype, only a small proportion of us can take advantage. The average Isa saver has just £5,361 in cash and £2,762 in shares, according to HSBC. Do you have £15,000 to spare? I wish I did.
2. New IsA: more flexible
NISAs will still benefit those saving smaller amounts, because the scheme has been made more flexible. Originally, you could only save half your annual ISA allowance in cash. Now you can put your full allowance into cash, if you wish. Alternatively, you could invest it all in a stocks and shares ISA, or mix and match the two. You also have complete freedom to shift your money from cash to stocks and shares, and back again.
3. They're a great way to save tax
If you're a taxpayer, you really should put your savings inside an ISA. That's because all your interest is free of income tax, and will continue to free of tax, year after year. With the average cash ISA currently paying just 1.57%, you won't earn much interest this year. But things will improve when base rates start rising, as could happen soon. In a few years, you can have a large pool of cash, earning a decent rate of interest, all of it free of tax.
4. And a great way to invest
If you're investing money for the longer term, it should grow much faster in a stocks and shares ISA than cash. Over the last five years, the average cash ISA turned £1,000 into just £1,025. But the average UK stocks and shares ISA almost doubled it to £1,981, according to Trustnet Direct. Better still, your returns are free of income tax and capital gains tax. Just make sure you understand the risks, and take advice if necessary to find the right funds.
5. The earlier you start, the better.
Many people wait until shortly before the end of the financial year 5 April to use their ISA allowance. There is little reason to wait. The earlier you start saving, the more tax you save. That goes for children as well. From 1 July, family and friends can save up to £4,000 a year into a Junior ISA for the under-16s.
ISAs offer great tax savings. It's just a shame most of us aren't rich enough to take full advantage.
Read more articles by Harvey Jones here
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