How Will the New ISA Rules Benefit You in 2024 and Beyond?

Just a few weeks ago, the Chancellor of the Exchequer, Jeremy Hunt, held his Spring budget, and the ISA was featuring predominantly. Where rules restricted ISA use in the past, some were now loosened, and where investment opportunities may have been seen as limited, they are now broader.

The introduction of the new British ISA, subject to its passing consultation, encourages more UK investment and more tax-free rewards for doing so. Those with an IFISA will find that new assets will be available, potentially providing a lucrative return on investment. So, what has changed? What has stayed the same? And could it help you on your journey to achieving a combination of income and growth?

What are the new rules for ISAs?

When Jeremy Hunt came to lay out his plans for savings and investments in the budget, there was a great deal of anticipation relating to what he would do with ISAs.

The financial difficulty many in the UK find themselves in has meant that saving has been hard. With difficulty saving comes difficulty in affordability, so it was hoped that the changes laid out in the budget could prove to be beneficial to a wide range of people.

For some, the alterations made do not change much, but for those looking to diversify their savings and investments, the new rules can help them keep more cash tax-free.

A snapshot of the new ISA 24/25 rules, active from April 6th, 2024:

  •       You can open more than one ISA of the same type within the same tax year.
  •       You can make partial transfers between ISA providers, even if the ISA was opened in the same tax year.
  •       Dormant ISAs will not need to be reapplied for each year.
  •       A British ISA will have its limit upped to £25,000 (a £5000 increase on the standard £20,000). There is no confirmed date for this yet, and it may be pushed back.
  •       IFISAs can now have new assets put into them.
  •       Junior ISA loophole allowing parents to invest up to £29,000 for 16 and 17-year-olds will expire.

Overall, it sounds positive. Critics may point out that only those with spare money can ever benefit from tax-free savings though.

Let’s look at each of the changes in a little more depth and see how it could benefit you.

Multiple ISA accounts of the same type

From April 6th, you’ll be able to benefit from having more than one stocks and shares ISA or more than one cash ISA.  In the past, you were limited to just one of each.

Current rules state that you can open just one cash ISA, stocks and shares ISA, Lifetime ISA or one IFISA.

The rule changes mean you can now spread your cash across two of the same ISA type. Why do that? You may ask. Well, if you already have funds tied up in one stocks and shares ISA, and it’s performing well, but then you discover a new one offering something enticing, you could put funds into both.

As long as you don’t exceed your annual allowance. Likewise, your cash ISA may have one rate, but a new, more impressive rate may become available, pop some funds into that one and you’ll still be within the ISA rules even though you have two cash ISA accounts.

Partial transfers between providers

Should you be opening an ISA after April 6th and want to move part of it to a new ISA a few months later, you’ll now be able to. In the past if you opened an ISA, and within that same tax year wanted to move it, you would have to transfer the entire balance. 

If your ISA was opened in a previous tax year though, you’ll be able to continue with partial transfers as before. This new rule only affects newly opened ISAs and any transfers you wish to complete within the same year.

 Dormant ISAs can remain open

If you have an ISA account that is sitting there empty and inactive, you normally must reapply for it to become active again and begin your savings journey.

From April 6th, this won’t be the case. So should there be an old account, you feel you’ve forgotten about, investigate! There could be a great interest rate sitting there that you can now start taking advantage of!

The British ISA for 24/25

Whilst nothing is completely set in stone for when it becomes active, this innovative ISA could be attractive to many. With an expanded ISA allowance of £25,000, it gives savers the chance to put an additional £5,000 into an account tax-free. The only caveat is that the bonus £5,000 allowance can only be invested in UK equities.

Funds like the BlackRock Income and Growth Trust for example only put money into UK businesses, providing investors with the opportunity to benefit from this £5,000 allowance increase. It may be best to wait for full clarity first though before planning where your cash should go.

New assets for IFISAs

If you haven’t heard of an IFISA yet, you are not alone, don’t worry! Before we dive into what the new changes mean for them, we will quickly explain what they are.

Innovative Finance ISAs are a type of tax-free investment where investors are matched up with businesses that require funding. It can be risky but much like anything in finance, the higher the risk, the greater the reward (sometimes!)

From April 6th, those with an IFISA will be able to invest in Long-Term Asset Funds, known as LTAFs, and Property Authorised Investment Funds, known as PAIFs. This is alongside the existing investment avenues of peer-to-peer loans.

Junior ISA rules for 24/25

Junior ISAs are a great way to help your children get a head start, with a £9,000 allowance, they are an excellent tax-free way for children to see their money grow. However, a loophole meant that 16 or 17-year olds could open their own cash ISA (with its £20,000 allowance) and still have the junior ISA with its £9,000 limit. This meant a potential £29,000 could be held by a child in its ISA account!

As of April 6th though, things change, and cash ISAs will only be available to those 18 or over.

Is anything staying the same?

Whilst lots has changed, lots has stayed the same too. Allowances for all ISAs have remained as they were.  The Junior ISA stays at £9,000, the Lifetime ISA will still be £4,000, and the standard ISA remains at £20,000. There is still the additional £5,000 to come from the British ISA but at the time of writing, nothing was set in stone.

There is plenty of opportunity out there for those looking to see their money grow over the coming years, investments providing both income and growth are popular but it would always be advised to seek financial advice and carry out research before committing. Investments can go up and down and there is no guarantee you will get back the amount you invested.