A NISA way to save?

1 July 2014 saw the ISA reformed, into a new and simple product imaginatively called…The New ISA or NISA.

Before this date there were limits on the amount that you could save within the cash and stocks and shares elements, but the NISA has a new overall limit of £15,000 per tax year and allows you the option of saving this as cash, stocks and shares or any combination of the two.

Existing ISAs automatically become a NISA, so you don’t need to take any action and as they behave just like ISAs did, there is no change to the tax aspects. You must save or invest by 5 April for it to count for that tax year, so if you don’t use your £15,000 allowance by this date it doesn’t roll forward and will be lost. A new annual NISA allowance then starts on 6 April when it increases to £15,240.

A Cash NISA is simply a savings account where the interest paid is not taxed, whereas with a conventional bank or building society account interest received is subject to Income Tax at your marginal rate. Cash NISAs are available to any UK resident aged 16 or over.

A Stocks and Shares NISA doesn’t attract a rate of interest, instead it is invested into the stockmarket, where you can purchase funds, bonds or shares which can fluctuate in value. You don’t pay Capital Gains Tax on any growth generated within a NISA and any dividend payments you receive aren’t subject to taxation, although you can’t reclaim the Tax Credits on them. The stocks and shares NISA is available to any UK resident aged 18 or over.

It is possible to change the provider your NISA is held with and you won’t lose the tax benefits provided you don’t withdraw the money yourself and that you complete a transfer form.

If you took out a PEP (Personal Equity Plan) or a TESSA (Tax-Exempt Special Savings Account) in the 80s or 90s, these have also become NISAs and are subject to the new limits mentioned above.

There is also a version specifically for children called the Junior ISA (JISA) and this replaced the Child Trust Fund in 2011. It works in the same way as the NISA for adults, but has a lower annual limit of £4,000 per child. From 6 April 2015, the new allowance increases to £4,080. All JISAs are held in the child’s name and they cannot access the funds until they are 18 years old. Once they reach 18 they can do with it what they like.

Remember that the value of investments can fall as well as rise and you may get back less than you invested. Past investment performance is not a reliable indicator of future results.

To make the most of your tax efficient savings, contact your Financial Planning Consultant at one of our 15 offices.