In what looked more like an attempt to deliver some newsworthy soundbites at the budget rather than a sensibly planned strategy, it was announced by Jeremy Hunt on 6th March that a new ‘British ISA’ would be launched.
The current understanding is that a new, additional and separate ISA allowance worth £5,000 will be available to savers who are willing to invest into British listed company shares. However, a consultation on exactly how this will work will run until June 2024 so details are scarce, and it is not expected that the British ISA will come into being until April 2025, if at all given the likelihood of a change of government before April 2025.
However, even if a British ISA doesn’t become reality, the Conservatives have already made the ISA landscape fairly complicated in recent years and we thought it would be helpful to summarise the current options open to savers.
ISA options for adults
It is possible to mix and match from the following options and from April 6th 2024 it will be possible to open multiple ISAs of the same or different type so long as you don’t exceed your available allowance.
It is not possible to invest more than £20,000 into any one ISA or any combination of ISAs in any tax year.
Some investment firms offer ‘Flexible’ cash or stocks & shares ISAs: this means that you can withdraw money from an ISA in any tax year and so long as you replace it into the same ISA before the end of the tax year, you regain the ISA protection.
- Stocks and Shares ISA: £20,000 annual allowance, available to anyone over the age of 18. The money can be invested into company shares or a range of different investment vehicles.
- Cash ISA: £20,000 annual allowance, available to anyone over the age of 16. These can be opened with banks and building societies and both variable interest and fixed rate options are available.
- Lifetime ISA (LISA): £4,000 annual allowance, with £1,000 added by the government on top. A LISA can only be set up by someone over 18 but under the age of 40, though it is possible to continue to contribute to a LISA until age 60. Money can be withdrawn from a LISA penalty free at any time if it is used towards the purchase of a first home. If any money is withdrawn from a LISA before age 60 for any other purpose, a penalty charge equal to 25% of the amount withdrawn applies. A LISA can be used in conjunction with a normal ISA, which means that someone could invest £4,000 into a LISA (with the government adding £1,000 to make the total up to £5,000) and £16,000 into a normal cash or stocks and shares ISA.
- Innovative finance ISA (IFISA): this type of ISA allows access to peer-to-peer lending and crowdfunding, which can offer higher rates of interest than normal cash ISAs.
ISAs for children
A child over the age of 16 can open a cash ISA (details above). In addition, a parent or guardian can open a Junior ISA (JISA) for a child. A JISA has an £9,000 annual allowance for investing into stocks and shares, available to children under the age of 18.
Future outlook for ISAs
Given that ISAs (or similar) have survived in one form or other since 1987, it is not expected that a new Labour government would do away with them.
It is, though, fair to expect that a new government might make some changes to simplify the current ISA regime.
Photo by Annie Spratt on Unsplash