It’s been quite a while since savers in the UK had some good news to celebrate, what with interest rates being held at historically low levels since the recession started. However, the recent Budget changed all that with the Chancellor’s announcement of the introduction of a new ISA, or NISA as it’s being called.
So, what does this news mean for you?
ISAs are among the easiest savings accounts available because there are very few restrictions attached to them, and that’s one of the reasons they’re so attractive. The only real restriction is how much you pay in each year.
The number one reason ISAs are so popular is the tax-free wrapper they provide your savings with. Simply put, this means you don’t have to pay tax on any interest your savings make in an ISA, providing you don’t exceed the ISA limit.
For the tax year ending in April 2014, savers could pay up to £5,760 into a cash ISA, while the total allowance for a cash, stocks & shares ISA was £11,520. You could withdraw as much as you wanted from this, but only pay in up to this limit, and only this amount would be tax-free.
Cash, stocks & shares and what?
The traditional ISA has always been split into two sections – cash only and a combination of cash and stocks & shares. While savers could only put up to £5,760 (for the 2013/2014 tax year) into the cash portion of the ISA, up to the full allowance could be saved in the cash, stocks & shares account.
As the name suggests, some would be cash and the rest would be invested in stocks and shares. The profit these made would be tax-free.
Making life easier
When you’re new to the subject of ISAs, all of this might sound extremely complicated. However, luckily, the NISA makes things easier.
From July 1st, you will be able to put up to £15,000 tax-free into a NISA – nearly three times more than the current cash ISA limit. You can save it all as cash or all as stocks and shares, or as a combination of both, and can transfer money between the two as you see fit. Gone is the rigid half cash and the remainder stocks & shares limit of before.
What does this mean for me?
If you don’t yet have an ISA, open one before April 5th and you can save up to the 2013/2014 tax-free allowance of £5,760 for a cash ISA and £11,520 for a cash and stocks & shares ISA. Then, at the start of the 2014/2015 tax year on April 6th you can open another and invest up to £5,940 in cash and the remainder of the £11,880 allowance in stocks & shares.
Then, from July 1st you can save on top of this up to the new limit of £15,000 in your choice of cash or stocks and shares, enjoying a far greater tax-free benefit. If you already have an ISA on July 1st you can simply save on top of what you have up to the new limit, and if you don’t you can open one and enjoy up to £15,000 of tax-free saving.
Why should I bother?
However much you save, if you’re a taxpayer then the interest on an ‘ordinary’ savings accounts is paid to you minus tax. So even if you’re only saving a little, you’ll still pay tax on the interest. If you are planning on saving – even if you just put £1 a week aside - you might as well get a NISA and enjoy that interest tax-free.
And remember, your partner can have a NISA too, so as a couple you could save up to £30,000 tax-free a year (if you’re lucky enough to have that sort of money to save!)
How we can help
At thinkmoney, we manage your account and ensure that there is money budgeted from your income each month to cover all of your essential bills, like your rent/mortgage, utilities, phone bill, debt repayments and any other regular outgoings. And we can do this for regular savings into an ISA or NISA.
If you open an ISA, simply let one of our money managers know and you can arrange to set up a standing order to it so that you’re putting some of your money away every month. It might only be a small amount that you’re saving, but it all adds up. And because it’s going into an ISA, the interest you make will be tax-free, so you have the chance of making a nice return on your NISA investment.
There are fees payable for our accounts, but we never charge late penalties, and because we make sure all your essentials are covered each month you don’t have to worry about being left out of pocket and unable to pay your bills. Find out more about our budgeting account here.