Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
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After weeks of rumours, Wednesday's autumn statement confirmed that Individual Savings Accounts (ISAs) are set to get even nicer in time for their 25th birthday next year.
ISAs first launched in 1999. They're a great option to shelter your money from UK tax. Once money's paid into an ISA, it's then protected from both UK income and capital gains tax.
Over the years we've seen different types of ISAs launched and tweaks to ISA rules and regulations.
Jeremy Hunt has announced a roadmap for ISAs that aims to simplify some of these rules. Alongside a cut to the rate of National Insurance, this could be good news for ISA savers and investors.
The political landscape is, of course, changing all the time. So, while the government have confirmed their priorities for ISA reform, these changes aren't yet guaranteed.
This article isn't personal advice. As we've seen, ISA and tax rules can change, and any benefits depend on your circumstances. If you're not sure what's right for you, ask for financial advice.
“Savers and investors will be delighted the chancellor has taken the opportunity to pay some much-needed attention to ISAs to help make sure this much-loved part of the furniture remains a firm fixture for the future.
Sarah Coles, Head of Personal Finance
What are the proposed changes to ISAs?
Some of the main ISA announcements in Wednesday's autumn statement included:
ISA allowances frozen for the 2024/25 tax year
Despite some calls for an increase in annual allowances, the government's chosen to freeze these limits for the next tax year (6 April 2024 - 5 April 2025). This means the overall ISA allowance will stay at £20,000 per tax year.
You can currently split your allowance between a Stocks and Shares ISA, a Cash ISA, an Innovative Finance ISA and a Lifetime ISA (up to £4,000 per tax year which counts towards the overall £20,000 limit).
The Junior ISA allowance will stay at £9,000.
Flexibility to pay into the same type of ISA with different providers
This will make it easier to have ISAs of the same type in different places in the same tax year (from April 2024). It could offer Cash ISA savers the chance to go after more competitive rates more easily, or pick and mix easy access and fixed rates.
It also helps protect those who accidentally pay into more than one of the same type of ISA in a single tax year. This is easily done if paying into an ISA by Direct Debit. The change removes that risk of breaking the rules.
Allowing partial transfers between providers
In a similar way, this will give ISA savers and investors greater flexibility and control (from April 2024). The rules currently force an all-or-nothing approach to current year ISA transfers – you have to transfer your entire ISA of that type from the current tax year, or nothing at all.
The change is expected to mean you'll be in charge of how much you want to transfer, no matter when you made the subscription.
No need to reapply for existing ISAs each year
ISA savers and investors are currently required to, in essence, reapply for ISAs they already hold when there's been a gap of one tax year where no subscriptions were paid. Removing this rule should reduce the potential for confusion and cut down on unnecessary red tape.
New 18+ age limit for all adult ISAs
This rule only directly impacts Cash ISAs, where the minimum age for opening an account is currently 16 years old. The 18+ rule will mirror other adult ISAs from April 2024. 16 and 17-year olds will continue to be able to open and save into a Junior ISA.
Certain fractional shares will be ISA eligible
This could allow investors who might otherwise have been priced out of certain shares to hold these fractional investments in an ISA.
To read more about what was announced on Wednesday, including on tax and pensions, visit our autumn statement page.
The HL ISA family
With so much noise around proposed changes to ISAs, it's easy to forget there are already a range of options available to UK savers, investors and their families.
You don't need to wait until the 2024/25 tax year to take advantage of this year's annual allowance – it's easy to get started today. You could even make the most of the National Insurance cut coming in January to pay more into your ISA before the tax year ends on 5 April.
For example, you could put £5,000 in a Cash ISA and then the remainder (£15,000) in a Stocks and Shares ISA.
ISA accounts explained. Learn about all the different ways you can use your ISA allowance this tax year.
A voiceover talks over imagery. The imagery compliments what is being said but doesn't provide any additional information.
“ISAs are an effective way to plan for your financial future. There are different types of ISAs to help you save or invest, depending on your goals. There are five different types of individual savings accounts, or ISA.
Cash ISA, Stocks and Shares ISA, Lifetime ISA, Junior ISA, and Innovative Finance ISA.
Stocks and Shares ISAs are available for UK residents aged 18+, who want to invest their money tax efficiently over the long term and are happy with the risks of investing. You can only put money into one Stocks and Shares ISA per tax year. Once the money is within the ISA wrapper, you can invest in shares, funds, and other investments. You can withdraw your money whenever you need to, although investing should be for the long term.
Cash ISAs are open to UK residents aged 16+ who want to save cash. Money in Cash ISAs can be taken out at any time, provided the ISA doesn't have any fixed terms or limits. For example, you may have selected a fixed term account within a Cash ISA, which only allows withdrawals after a certain time.
A Lifetime ISA can be opened by UK residents aged 18 to 39. Once opened you can pay in until your 50th birthday. Contributions get a 25% boost from the government, which doesn't count towards the Lifetime ISA £4,000 annual contribution limit. You can withdraw the money towards the purchase of your first home, or after you turn 60. Withdrawals not for an eligible first home purchase or later life, will usually be subject to a 25% government charge, so you could get back less than you put in.
Junior Stocks and Shares ISAs are open to UK resident children aged under 18. Parents or guardians can open a Junior ISA for their child, and anyone can add money to it. Money in a Junior ISA can't normally be taken out until the child turns 18, when the child takes full control of the account and it becomes an adult Stocks and Shares ISA.
Innovative Finance ISAs are also available for UK residents aged over 18. These ISAs are for access to peer-to-peer lending. Money in Innovative Finance ISAs can be taken out at any time, providing the holding in the ISA doesn't have any restrictions, although investments should be held for the long term.
All ISAs share four key features. First, all ISAs are tax protected accounts, which means you don't pay tax on interest on cash in an ISA, on investment income, or gains. There is no need to declare any ISA interest, income, or capital gained on your tax return. Second, all ISAs have a restriction on the amount you can pay in each tax year, called your ISA allowance. ISAs are individual savings accounts, so they can't be held in joint names or for a business, they can only be in the name of one person. And finally, ISAs are unique to the UK. Only those who are UK residents can open an ISA for tax purposes, unless you're a crown employee working overseas, or their spouse or civil partner.
There's an ISA for everyone, and the different types of ISA can help you save or invest in a way that suits you. Best of all, you don't have to pay UK tax on your savings or investments. ISA tax rules can change, and their benefits depend on your circumstances.
Get started on your ISA journey at hl.co.uk.”
Disclaimer:
Unlike the security offered by cash, stock market based investments can go down in value.
Investments can go down in value as well as up so you or, in the case of a Junior ISA, your child could get back less than you invest. The information in this video isn't personal advice - if you're not sure if an investment is right for you or your child, please ask for advice. ISA tax rules can change and their benefits depend on individual circumstances.
You can withdraw money from a Lifetime ISA to buy your first home, or at age 60. Other withdrawals will usually mean a 25% government charge, so you could get back less than you put in. Using a Lifetime ISA for later life complements a pension.
Our most popular account is the long-standing Stocks and Shares ISA. Again, plenty of choice and flexibility is already available. It's up to you where you invest – you can choose from ready-made options, or create your own ISA portfolio by picking from funds, shares and more.
The longer you invest, the less likely you are to lose money, but there are no guarantees. Unlike the security offered by cash, investments fall as well as rise in value, so you could get back less than you put in.
Discover a tax efficient way to grow your wealth with a Stocks and Shares ISA
The words Stocks and Shares ISA are presented on screen as the video starts. The video is
animated with various scenes providing illustrations and metaphors for the narration.
A Stocks and Shares ISA offers a simple and tax-efficient way to grow your money for the future.
It's not an investment in its own right, it's a type of account.
And it's special because when you buy investments within an ISA you shelter them from UK tax.
This means that if your investments grow, you won't have to pay capital gains tax on any future
profits.
And if you're investing for income, you won't pay UK income tax either, which means you could save
thousands of
pounds in tax over the long term.
But remember tax rules change and benefits depend on individual circumstances.
You have the flexibility to take money out whenever you need to, but because of the excellent tax
benefits, the
government limits how much you can put into ISAs each tax year.
This is known as the ISA allowance, it changes from year to year, but for the current year you can
pay in up to
£20,000 and you have until the 5th of April to use this or you'll lose it.
How you choose to use your ISA allowance is up to you.
You can invest it all in a Stocks and Shares ISA, or you can spread your allowance between any
combination of the
other ISAs available, including Cash, Innovative Finance and if eligible, Lifetime ISAs.
A Stocks and Shares ISA gives you the freedom to invest in a wide range of investments, including
funds and UK and international shares and bonds.
You can also hold cash, so you can secure your valuable tax break now, and then chose the investments
when you're
ready.
If you're looking for a simple and tax-efficient way to save for the future, a Stocks and Shares ISA
is an
excellent option.
You can start investing with a lump sum of £100 or £25 per month.
So, why not find out how to get going today?
Unlike cash, investments can fall as well as rise in value so you could get back less than you
invest. Tax rules
can change and the tax benefits of ISAs will depend on your circumstances. This video isn't personal
advice, if
you're not sure whether an investment is right for you, please contact us for advice.
For shorter-term goals less than five years away or rainy-day savings, the HL Cash ISA also puts you in charge. In a single tax year, you can spread your ISA allowance across easy access, limited-access and fixed-term products (when available).
If you already hold ISAs elsewhere, now could be a good time to bring them under one roof. It's easier to manage your ISAs when they're in one place, and we've just announced the return of our biggest ever transfer cashback offer.
Chris writes on topics about ISAs and personal finance, as well as working to improve our website for our clients. He's passionate about current affairs and helping make investing accessible to those who are just starting out.
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