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Changes to ISAs in 2016

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The new tax year begins early next month, and 2016/2017 will see a number of changes made to the way that ISAs work. These will give savers new flexibility in how they use their ISAs and the kind of savings they put into them. Some of the key changes due to be rolled out this year are:

No Longer the Only Tax-Free Savings

This is not so much a change to ISAs as to savings tax rules, but it stands to massively transform the role that ISAs play in most people’s savings strategies. From April, your first £1,000 of interest earned on savings (or £500 for higher-rate taxpayers) will be tax-free regardless of whether it is held in an ISA or not. For a basic rate taxpayer with a top-paying easy-access savings account, this means being able to save almost £75,000 before paying any tax on interest. For many people, this means that tax on savings interest will no longer be an issue, and a non-ISA account with a higher interest rate could become more profitable than an ISA.

Innovative Finance ISA

For a long time, only cash and stocks and shares have been eligible for tax-free ISA status. However, for some time there have been plans to introduce the ability to place investments through peer-to-peer lending into an ISA. These plans will now finally be put in place through the Innovative Finance ISA, for which peer-to-peer investments will be eligible.

Fewer Restrictions

A number of restrictions are being removed from ISAs in the new tax year. For example, it has always previously been the case that if you put money into an ISA and then withdrew it again, it would still be subtracted from your ISA allowance for the tax year. Now, this is no longer going to be the case. Furthermore, the new tax year will see a lot more flexibility introduced to the rules for making transfers between ISAs, for example moving the contents of a stocks and shares ISA over to a cash ISA to readjust your balance between cash and investments.

Help-to-Buy ISA

This new kind of ISA could provide a significant boost to young savers who are hoping to build up a deposit on a home purchase. For every £100 placed into a Help-to-Buy ISA, the government will give an additional £25 towards your deposit up to a maximum of £3,000. The additional money from the government is paid out at the point of purchasing the home, and savers will be able to save up to £1,200 in the account in the first month and up to £200 in following months. You will not be able to pay into a cash and Help-to-Buy ISA in the same year except under certain split schemes.

ISA Benefits Following Death

When an ISA-holder dies, it will now be possible for ISA benefits to be passed onto their spouses. During the administration of the estate, ISA status will be maintained on savings, with relevant tax reliefs granted to the representatives of the deceased.


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