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Understanding exactly what you can save into cash ISAs and Stocks and shares ISAs each tax year has not always been easy, as you could use your full entitlement if saving into a stocks and shares version, but for the Cash ISA you could only invest half the amount.
The March 2014 budget announced that ISAs are being revamped into a simpler product, with equal limits for cash and stocks and shares, plus a substantially increased ISA allowance. If you've already got an ISA (or ISAs), the changes apply to existing accounts too.
From 1 July 2014, your ISA allowance (how much you can invest in ISAs) will rise to a whopping £15,000 for the 2014/15 tax year. This is the biggest ever increase to the ISA allowance. If you use some/all of your initial 2014/15 ISA allowance (£11,880) in the first few months of the tax year, you can top it up to the higher limit from 1 July if you choose. For a couple, the opportunity to save £30,000 pa, or indeed move less tax efficient investments into ISA “wrappers” each year could be very useful indeed.
From 1 July 2014 you'll be able to invest your whole ISA allowance in a Stocks & Shares ISA, or save the lot in a Cash ISA. You'll also be able to split your ISA allowance across a Stocks & Shares ISA and a Cash ISA in any combination you choose (as long as you don't exceed £15,000).
As always, you'll be able to subscribe to one Stocks & Shares ISA and one Cash ISA each tax year, but from 1 July 2014, you'll be able to transfer your money from a Cash ISA to a Stocks & Shares ISA (and vice versa) freely. You'll also be able to switch providers as often as you wish.
As well as the changes to ISAs, you'll also be able to invest and save more for your children. From 1 July 2014, the Junior ISA allowance and Child Trust Fund limit will rise from £3,840 to £4,000.
A point which may be of interest to those who like the tax efficiency of the ISA, but wish to consider Inheritance Tax efficiency over income and capital gains efficiency, is the August 2013 announcement by HM Treasury that AIM (Alternative Investment Market) listed shares would be made eligible for stocks and shares ISAs.
AIM shares can offer investors a highly efficient form of investment with no liability to income or capital gains taxes, but after an investment period of two years there is also no liability to Inheritance Tax. This is a specialist area and generally involves more risk than traditional S&S ISAs, so you should certainly seek independent advice if you are considering this angle.
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