Dear Client
The Chancellor’s Pre-Budget Report in November 2006 announced a range of changes aimed at simplifying the existing ISA and PEP rules. The changes are effective from 6 April 2008 and will create huge potential as savers seek long-term solutions for their ISA savings.
The ISA structure from 6 April 2008 has been simplified, with the Maxi and Mini ISA distinctions ceasing to exist. The only differentiation between ISA types will be that of cash and stocks and shares.
A further simplification also means that PEPs will now be classed as a stocks and shares ISA. At the same time a welcome increase in the ISA annual allowance will come into force, with the maximum contribution increasing to £7,200 – not forgetting that transfers into stocks and shares ISAs, including those from cash ISAs, do not count towards the annual allowance.
The new rules mean that investors can make contributions of £7,200 per annum into ISAs, of which up to £3,600 can be held in cash, the balance (or the full amount) being invested into stocks and shares – providing added flexibility to investors. For example, currently if a client saves £1,000 into a cash ISA the maximum they can subscribe to a stocks and shares Mini ISA is £4,000. Under the new rules, as well as being able to invest slightly more overall, a client investing £1,000 into cash could invest up to £6,200 into stocks and shares.
Probably the most significant change to the ISA rules is the ability to transfer existing cash ISAs into stocks and shares ISAs.
The most recent figures published by the Bank of England show that there is currently in excess of £137 billion held within Bank or Building Society cash ISAs. Clients who have fully utilised their cash ISA and previous TESSA allowances could have over £50,000 currently held inside one or more cash ISA.
From 6 April 2008 providers can begin to accept transfers from cash ISAs into their stocks and shares ISA products. The transfer from cash to stocks and shares is a one-way street – it will not be possible to make the opposite transaction, or transfer them back to cash once the change has been made.
Of course, there are clear differences between holding money within a cash ISA and a stocks and shares ISA, most notably the ability for the value to drop as well as rise.
However, over the long-term there is a strong case for equity investment via an ISA.
For those clients wanting to transfer from cash into stocks and shares, deciding the right time to transfer will be a key consideration.
There is the ability to phase investments from cash into your chosen funds over a period. This can help to ease concerns over the timing of the investment – especially in times of market volatility such as those we have seen recently.
Transferring assets from cash ISAs will only be done after careful consideration of your needs. Of course, it wouldn’t be appropriate to transfer lock, stock and barrel into a stocks and shares ISA if the cash ISA represented your only cash savings. However, for clients with substantial cash ISA deposits looking for a way to boost their stocks and shares ISA holdings without affecting their annual subscription limits, this change in regulation presents an excellent opportunity.
As you will appreciate your ISA allowance is an annual one. You either use it or lose it. If you wish to take advantage do make contact with us as soon as possible in order for us to assist you in beating the deadlines.
At 9 March 2008:
- The FTSE 100 closed down 184 points at 5,700 amid fears
that high oil prices are damaging the economy.
- Over the past 12 months the index has fallen by 7.2%.
- Over three years the index is up by 13.2%.
- Over five years the index has risen by 60.3%.
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