ISA accounts it's NISA to save tax free
Tax-free saving has undergone a sea change.
On July 1, it was out with the old ISA and in with the shiny New ISA (NISA for short) as the government introduced its beefed-up savings scheme which, commendably, allows us to keep more of our own money.
The idea of NISAs is to simplify the mechanisms for tax-free saving and make thriftiness a more attractive proposition.
And they will. NISAs are an improvement. That doesn’t mean they are easy to understand. The words “clear” and “mud” can still apply if you’re not a fully-qualified financial whizz.
Jon Cartlidge, The Nottingham’s Senior Product Manager for Savings and Mortgages tries to clear the way by answering some of the bigger brain-fuddling NISA questions.
Let’s start slowly. Jon, what’s an ISA?
An ISA is a tax free savings account. That means you do not have to currently pay tax on interest earned on your money*. There are lots of different bank and building society ISA products out there - with different rates of interest and terms and conditions for accessing your money.
What is the big difference between ISAs and NISAs?
ISAs allowed you to save up to £5,940 in cash and another £5,940 in stocks and shares. NISAs raise the total tax-free allowance to £15,000 - and all of it can be in cash OR a combination of cash and stocks and shares of your choosing.
How are NISAs easier to understand?
The savings limit is easier to remember for a start. £15,000 is a more memorable number than £5,940 + £5,940.
Is that the only simplification?
No. The old separation between a cash ISA and a stocks and shares ISA has gone. Now you can mix cash and stocks and shares in a single ISA. You can even transfer a previous year's stocks and shares ISA to a cash ISA for the first time ever.
Why has the government done that?
One of the reasons is that the government wants to allow people to switch some of their ISA stocks and shares into cash. It wants us to save, but it wants to make more of our savings readily available to spend. Doing that, the government believes, will give a further boost to our economic recovery.
I still keep seeing lots of bank and building society adverts for ISAs rather than NISAs. I thought ISAs were now defunct. What’s going on?
The government coined the term “New ISA”, the media shortened it to “NISA” - and it caught on. Most banks and building societies aren’t adopting the name change - even though their products are NISAs in all but name. If you see ISA, think NISA.
I opened an ISA for this current 2014/15 tax year back in May with The Nottingham. Am I now locked into to those old allowances?
Not necessarily. You might still be able to take advantage of the raised £15,000 NISA allowance, but you need to do it soon. Talk to your branch today to find out how the changes have affected your account.
I’ve seen a product that offers more interest than my current ISA. Is it okay to withdraw that money and put it in a NISA?
Don’t withdraw the money as cash or a cheque, it confuses the taxman who will insist on counting it twice. You need to keep your money in the NISA system - even if it is moving accounts. That’s easy enough. Tell your bank or building society where you hold your ISA and what you want to do with it - they will then arrange an appropriate transfer of funds.
There are loads of NISA products out there. Which one is the best?
You’re right, there are lots of different NISA products - more than 270†. They offer different interest rates and different notice periods. You need to find one that suits you and your financial circumstances.
How do I do that?
Speak to someone in the know. We’re nice people at The Nottingham, so tell us what you want to achieve and we’ll try to help.
*Interest will be paid free of UK income tax. The value of tax benefits depends on individual circumstances. The tax treatment of ISAs may change.
†Source - MoneySupermarket, correct as at 27 June 2014.