How will ISAs change in the new tax year? (24/25)

Category: Financial Planning&Tax

Significant changes that the Government has made to ISAs (individual savings accounts) will come into force on 6 April 2024.

If you haven’t heard about the new ISA rules, we have summarised them below.

So, what are the changes?

  • The minimum age for opening an ISA will increase to 18. From then on, you will only be able to open an adult cash ISA. If you want to use the cash ISA allowance for children aged 16 and 17, you must do so before the end of the tax year. Children of this age can still open and save into a Junior ISA; however, the annual tax-free allowance is lower at £9,000.
  • You can now transfer part of your ISA account to another ISA, regardless of when the money was paid in. Previously, you could only transfer the entire amount from the current tax year. This new rule allows you to keep some of your ISA funds with your current provider.
  • End of the single ISA limit. You can now open multiple ISAs of the same type each year instead of being limited to putting money into only one kind of ISA as before. This change is designed to make saving and switching between different ISA providers easier, ultimately making the market more competitive. As of now, cash ISAs still offer high rates of AER.
  • Dormant ISAs won’t require you to reapply. The previous rules required people to reapply for their ISA if their account had been dormant for a tax year. Starting in April, this rule will be scrapped, so your ISA account will stay open and ready to use.
  • Innovative Finance ISA will include extra funds. The range of permissible investments for Innovative Finance ISAs will include open-ended property funds with extended notice periods and long-term asset funds.

What about the UK ISA?

The British ISA has yet to set a launch date. The government has started the process with a consultation to gather views on how the product would work and the types of investments allowed. Financial services firms have until 6 June to respond and share their thoughts on offering this new ISA type and the required operational changes. Progress is expected to be slow, and it’s unlikely the UK ISA will be available for investment before the 2025/26 tax year begins.

ISAs as a savings strategy

An Individual Savings Account (ISA) lets you save up to £20,000 a year without paying tax. There are different types of adult ISAs and a Junior ISA for kids, each with its own rules and some with smaller limits than the standard yearly allowance. ISAs are a valuable part of a varied savings and investment plan.

Recent changes to the ISA rules are the biggest in 15 years. The goal is to make the ISA market more competitive and offer better options for savers. As a tax-free savings account, it’s an excellent way to lower your tax bill.

For more flexibility, you can split your savings between multiple cash ISAs and stocks and shares ISAs. You can also do partial transfers, keeping some money in an existing ISA instead of moving the whole account.

We can advise you on a suitable savings and investment strategy. Whether you want to grow a savings pot or generate income for the future, we can help you achieve your financial goals.

To see how we could help, you can book a free, no-obligation chat here.

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