Saving has been a hot button topic around the country for a long time. Just how do you save when wages are falling and the cost of living is rising? HMRC announced in March that the ISA limits were changing. Now that we’ve had a few months to see what’s going on, there are some facts that you need to know in order to truly make the best decision around.
By now, you should have topped off your ISAs for the previous tax year. But as July 1st approaches, a new ISA limit approaches with it. From here on out, you can put away 15,000 GBP between cash ISA and a stocks and shares ISA. But the new ISA — called the Nisa, brings some flexibility that will make things a lot easier over time. We say “over time” for one big reason: these changes are rolling through in a very slow fashion. Some providers will act faster than others, and transfers may be slower than you would like. Be patient and let the system work itself out. This will be a net positive in the long run, from what we’ve seen so far.
Youth Encouraged to Save
One of the biggest trends that are emerging from the new wave of changes is that youth aged 16 to 18 are being encouraged to save. It’s been shown time and time again that the younger you are when you really start saving money, the more money that you will have over time. The power of compound interest is a proven fact, so we won’t belabor the point here.
People in this category get to put away 15,000 GBP into a cash ISA, but they also get to set aside 4,000 GBP in the new Junior ISA account, or “Jisa”. This is an incredibly opportunity to save more than the average person does, and hopefully young people will take advantage of it.
Transfers Allowed…To Cash Only
If you have money in a stocks and shares ISA, you can move it to a cash ISA. You want to make absolutely sure that you’re moving it to a cash ISA that allows for transfers in, otherwise you will not be able to do it.
No Peer to Peer Loans in S&S ISAs… For Now
Peer to peer loans are exploding in popularity across the UK, but that doesn’t mean that you can include them in your S&S ISA. It’s not the best news, but HMRC has promised to review the regulations and assorted issues surrounded these loans and make a ruling in the future.
Retail Bonds Are On the List
If you’re feeling down because you can’t tap into peer to peer loans, why not look at retail bonds. Right now, the interest rate on bonds is higher than the rest of the market, given that you’re helping the companies in question raise money. It’s risky, but it can pay off big time.
Other Points of Note
Keep in mind that you need to personally keep track of the allocation, just like you always have. This means that if you want to put 9,000 GBP into a cash ISA and 6,000 GBP into a stocks and shares ISA, you need to avoid sending in more money. There are penalties associated with going over the new limit, so be careful. Providers do indeed send this data off to the HMRC, and they will inform you quickly that you have gone over your limit for the tax year.
If you have dividends inside of an S&S ISA, you’re still on the hook for taxes of 10pc.
A stocks & shares ISA can now hold cash as well as shares. As of July 1st, the interest on the cash held isn’t subject to tax, the way it was in previous tax years.
Another reminder: you cannot go back and “top up” a previous tax year. So now that we’re in the 15,000 GBP era, you need to make sure that you “use up” the limit before the end of this tax season. So if April 5th rolls around and you haven’t maxed out your ISA…you’re out of luck.
Hopefully this allows you to save more money and take your finances to the next level.