Isa’s are an easy to use tax shelter for investors. There are ISA millionaires out there who have obviously taken care to make sure they made use of the annual allowances and watched that the cash and stocks and shares elements are wisely invested each year.
The problem is under the existing rules you can transfer a cash ISA into stocks and shares but you can’t transfer a stocks and shares ISA into a cash ISA without losing the tax shelter.This is problematic when there is a slump in the market and those with stocks and shares ISA’s would rather bank the gains and put them in the safety of the cash ISA.
However Mr Osborne has announced an new ISA called the NISA available from the 1 July 2014. The main features of the NISA are:
- a higher investment limit of £15,000
- you’ll be able to split you NISA investment as you wish between cash and stocks and shares
- you’ll be allowed to switch investments in NISA stocks and shares to cash and visa versa
- interest generation from a stocks and shares NISA will be completely tax free. Previously it was taxed at the basic rate.
- Bank your gains with a NISA. If you think the market is going to take a dive you can avoid losing gains you make on stocks and shares held by a NISA by transferring them into cash until you think the time is right to go back into stocks and shares
- NISA providers, e.g. banks, building societies etc will no doubt charge for switching your investments. It is therefore advised to check the account charges for switching.
It appears however that the right to switch will not apply to existing ISA funds including those made between now and the 1 July 2014.
Banks usually offer good ISA rates around the start of the tax year so if you want to invest before the 1 July to take advantage of these, a cash ISA is probably your best bet as you can switch this to a stocks and shares ISA later. Between the 6 April and 30 June you can invest a maximum of £5,940 in cash plus the same amount in stocks and shares.
Once we reach the 1 July 2014 you’ll be allowed to top up your ISA with a NISA to bring your investment up to £15,000, and the cash limit will be removed.