The Individual Savings Account (ISA) is a popular investment vehicle offering tax advantages to individuals looking to save and invest for the future.
While several changes are set to take place to ISA’s in April 2024 certain aspects will remain the same.
The ISA landscape is constantly evolving so it’s best practice to keep up to date with any ISA allowance and rule changes for the 2024/2025 tax year so you know how they might impact your savings and investment strategies.
What is the ISA allowance for the 2024/2025 tax year?
The tax free ISA allowance will remain unchanged at £20,000 for the 24/25 tax year meaning that any income or interest earned through an ISA is free from income tax.
From 6 April 2024 individuals will be able to make use of the £20,000 2024/2025 tax free ISA allowance.
The lifetime ISA and junior ISA limits won’t be changed either with individuals continuing to save tax free up to £4,000 per year in a lifetime ISA and £9,000 per year in a junior ISA.
Understanding the new ISA rules for 2024/2025
The Chancellor of the Exchequer, Jeremy Hunt has kept the 24/25 ISA allowance at £20,000 but announced several changes to the ISA rules during the 2023 Autumn Statement and 2024 Spring Budget.
These changes aim to enhance the flexibility and accessibility of ISAs for individuals across the UK.
We’ve listed five of the main ISA rule differences for the 24/25 tax year below:
1. Open and pay into multiple ISAs of the same type
Currently individuals are allowed to open and contribute to one ISA of each type per tax year but starting from April 6 2024 this rule will be modified.
Under the new rules you will have the freedom to open and pay into multiple ISAs of the same type within the same tax year.
For example you could open and contribute to two different stocks and shares ISAs simultaneously.
This change may provide more opportunities for diversification within your investment portfolio allowing you to take advantage of different investment strategies in an effort to maximise your returns.
2. Make partial transfers between ISA providers
Up to the 23/24 tax year if you wanted to transfer funds from one ISA provider to another, you were required to transfer the full amount.
From April 6 2024 this rule will be amended so you can make partial transfers between ISA providers even if you opened your ISA in the same tax year.
This change aims to simplify the transfer process giving you more control over your ISA funds helping you optimise your investments by taking advantage of better deals or investment opportunities without the hassle of transferring the entire amount.
3. Innovative Finance ISA: New Asset Options?
Innovative Finance ISAs (IFISAs) provide individuals with the opportunity to invest in peer-to-peer finance, which matches investors with individuals or businesses in need of funding.
Until now IFISAs primarily included peer-to-peer loans. Starting from April 2024 new asset options will be available within the IFISA.
Investors holding an IFISA will be able to invest in Long-Term Asset Funds (LTAFs) and Property Authorised Investment Funds (PAIFs) in addition to peer-to-peer loans.
LTAFs offer access to long term private market investments such as venture capital, infrastructure, and private equity.
PAIFs primarily consist of real property or shares in UK REITs (Real Estate Investment Trusts).
This expansion of asset options within the IFISA provides investors with more choice and potentially higher returns. It’s important to note that these investments may carry higher risks compared to traditional ISAs.
4. No need to reapply for dormant ISAs
Previously if you had an existing ISA that you were not actively contributing to you were required to reapply for it annually.
Failure to do so could result in your account being frozen, preventing you from making any transactions until you reactivate it.
From April 2024 this requirement will be eliminated with the new rules meaning that you don’t need to reapply for dormant ISA accounts every year.
This change saves you the effort of reapplying for old ISA accounts and ensures that you can keep them active without any additional paperwork or admin.
5. The Introduction of a new British ISA
During the spring budget 2024 the Chancellor announced the introduction of a new UK ISA.
This ISA will allow savers and investors to contribute an additional £5,000 tax free on top of the existing £20,000 ISA allowance.
It appears that the additional £5,000 ISA allowance will only be available if you choose to invest in UK based equities.
The new British ISA is subject to a consultation phase, which is set to end on June 6. Detailed information on how this ISA will work and its official launch date is yet to be determined.
The potential increase to £25,000 through the new British ISA will come with specific conditions that should be carefully considered when the time comes.
How are you going to use your 24/25 ISA allowance?
The ISA allowance changes for the 2024/2025 tax year may bring opportunities for savers and investors across the UK.
The ability to open and contribute to multiple ISAs of the same type, make partial transfers between providers, and eliminate the need to reapply for dormant ISAs offers greater flexibility and control over your savings and investments.
The introduction of new asset options in the Innovative Finance ISA opens doors to potentially higher returns, while the closure of the Junior ISA loophole ensures a fair and consistent approach to tax free savings for individuals aged 16 and 17.
As we await further details from the government on the new British ISA it’s crucial to stay informed and make the most of the current ISA allowances.
