New ISA rules come into effect this week

David Hill INLT 45-099-PSB
David Hill INLT 45-099-PSB

This week the new ISA rules that were proposed in the last budget finally came into force.

The main change is the increase in contribution limits to £15,000 per annum.

For Junior ISAs the contribution limit has increased to £4,000.

Another significant change is the merging of the investment and cash ISA allowances, giving the ability to transfer Investment ISAs back to cash ISAs.

It is unlikely that it will be good advice to transfer back to cash as cash deposits rarely beat inflation over the long term.

The option to transfer from cash ISAs to investment ISAs will continue to be available.

As the anticipation of higher interest rates in the coming years increases, this will lead to increases in returns offered by fixed rate ISAs.

Currently a three per cent annual return is all that is achievable if capital is tied up in a cash ISA for five years.

This isn’t really sufficient reward for tying up capital for that period of time.

For many who can afford to invest for this length of time, an investment based portfolio is much more likely to produce better returns.

The probability of loss of capital with these portfolios reduces significantly for longer investment periods.

The combining of cash and Investment ISAs into one ISA will mean that if you move part of a portfolio temporarily into cash for tactical reasons, that the fund manager can now receive interest on the cash fund gross without deduction of tax.

This is a big advantage as it is common practise for Financial Advisers to take defensive action from time to time by moving out of certain markets and into cash to minimise risk.

This change will benefit those investors who are temporarily invested in cash.

More property investment ISAs are converting their structure to take advantage of new rules that allow the rent to be paid to ISAs free from income tax and ISAs will continue to be exempt from capital gains tax and tax on interest.

Cash based ISAs will continue to be liable for Inheritance tax which could result on a 40 per cent loss on death, whereas, some specialist investment ISAs will continue to be exempt from Inheritance Tax.

There are many thousands of ISA options available and it is important to seek appropriate Independent advice before taking action.

A list of independent advisers in your area can be found by visiting www.unbiased.co.uk

David Hill is a Chartered Financial Planner and Independent Financial Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814 or by email: david@hillsfinancialplanning.co.uk