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Raynor reviews: New tax rules for Isas
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In the April Budget, the Government introduced new tax rules for Isas. Nick Raynor, investment adviser at The Share Centre, explains what the new rules mean and highlights three shares for your Isa
From 6 October 2009, anyone aged 50 or over by 5 April 2010 will see the Isa limit increase from £7,200 to £10,200; a rise of more than 40%.
The long-overdue Isa increase has been seen as a boost for retired savers who have seen savings income dry up considerably since interest rates were lowered by 0.5% in March.
Unfortunately, the under-50s will have to wait until next April to take advantage of the higher limit, a move which has seen much criticism levelled at the Government.
The Scotsman argued, “Why allow older savers to benefit six months before everyone else? The Treasury should have implemented the increase to apply to all savers at the same time, whether in April next year or backdated to the beginning of the current tax year.”
Despite the controversy, the increased limit has been widely welcomed. Since their introduction in April 1999, Isas have proved to be an immensely popular way for investors to enjoy straightforward, tax-efficient investing.
Tax shelter
Not only can you invest without having to keep an eye out for capital gains tax, if you're a higher-rate tax payer, you don’t have to pay any further income tax.
top up your savings
While this can make a big difference to your return, it’s worth bearing in mind the way in which tax benefits are applied and how the level of allowances can change. Any tax advantages will depend on your individual circumstances.
Whatever your situation, it’s imperative you make the most of the new rules in order to shelter what you can from the taxman.
The two main types of Isa are Cash Isas and Stocks & Shares Isas. A Cash Isa offers tax-efficient saving in a deposit account, usually run by a bank or building society, while a Stocks & Shares Isa can hold an investment fund or funds, or individual stocks and shares.
However, it makes little sense to use the new Isa limit for saving cash because even the top-rated instant Cash Isa pays below many non-Isa savings accounts. Historically, far better returns have been realised through investing in the stock market with a Stocks & Shares Isa.
The Isa changes mean investors with The Share Centre and other providers will be able to invest an extra £3,000 into a Stocks & Shares Isa. However, there has been concern that some Isa providers may struggle to implement the change by the planned start date.
Those unable to top up through their current provider should probably consider transferring to another provider, as long as there are no penalties for doing so, to ensure they don’t miss out. The Share Centre will be accepting top-ups from investors wishing to take advantage of the additional allowance and will cover up to £300 in transfer costs.
by Nick Raynor, investment adviser at The Share Centre, 1 October 2009
