New ISA rules are set to come into effect in 2024 after Chancellor Jeremy Hunt announced changes in his Autumn Statement.
A number of changes will make things easier for savers, but critics claim Mr Hunt could have done more to simplify investment rules.
What is an ISA?
ISAs (Individual Savings Accounts) allow savers to invest money without paying tax on interest made.
Each saver has an annual allowance and they can't invest more than that allowance in each tax year.
How much can you put in an ISA? Well, the annual allowance is currently £20,000 and this looks set to remain for the foreseeable.
Money can be split between a Cash ISA, a Stocks and Shares ISA, a Lifetime ISA and an Innovative Finance ISA. Only a maximum of £4,000 a year can be put into a Lifetime ISA.
There are also Junior ISAs for under 18s. They can only save up to £9,000 per tax year.
New ISA rules
Firstly, the bad news:
ISA allowances frozen: Savers can put a maximum of £20,000 into ISAs each tax year, and this will remain frozen for the 2024/25 tax year.
The £20,000 annual allowance has been in effect since 2017, so this is a blow for savers when inflation has surged over the last 12 months.
For those with a large amount of money to save, they may well end up paying more tax on interest earnt in savings accounts outside of ISAs, because interest rates are so high.
NimbleFins previously reported 1.7 million people were predicted to pay tax on their savings investments in 2023, an increase of 82 percent.
Age limit increasing: Savers will have to be 18 to open an adult cash ISA, an increase from the current 16-years-of-age.
Those aged 16 or 17 now may want to look into opening an adult ISA now before the new rules come in in April 2024. You can open an ISA with as little as £1.
For those who don't open one in time, a Junior ISA - with an annual allowance of £9,000 - will still be available.
Now for some positive news...
How many ISAs can I have?
You can now have multiple ISAs: Savers could previously only have one type of each ISA throughout the tax year. That meant if you found a better deal, you would have to move all your money to that same provider.
Some banks reduce your interest reward if you take out money before the term is over, meaning you could be trapped with a lower rate.
Under the new rules, savers can pay into the same type of ISA with different providers.
For example, if you had £10,000 in a fixed rate cash ISA with Nationwide, but then Natwest started promoting a better rate, you could start investing there too up to your annual allowance, without having to withdraw all your money from Nationwide and being penalised for a withdrawal.
Partial transfers between providers: In addition to being able to have ISAs with different providers, savers will also be able to move their money around more easily.
Current rules state that if you want to move money to a new provider, you have to move the entire amount you invested during the current tax year, or nothing at all.
For example, you paid £20,000 into a cash ISA with Halifax in October, but you want to move £10,000 to another cash ISA with Santander in November. Currently this isn't possible and you'd have to move the entire £20,000 or nothing at all. But you'll be able to transfer however much you want from April 6 2024.
Fractional shares allowed: A Stocks and Shares ISA allows savers to invest in the stock market without having to pay tax on any earnings.
Currently savers have to hold whole shares, but when a high-value share costs hundreds of pounds, this can block savers from investing in these shares and therefore companies.
New rules will allow savers to hold a fraction of a share in their ISA, opening up more investment options to savers.
A word of caution
A word of warning must be issued with these ISA changes. While they have been announced, they have not yet been put in place.
A general election will take place at some point next year, and it is not known if these reforms will be confirmed before then.