UK Savings: the New ISA

[Taffy]

So, yesterday's budget saw Gideon announce major changes to the ISA (Indivdual Savings Account). These changes are of relevance for UK-resident Mustachians.

If you don't know what an ISA is, here's a brief introduction for the layman. Essentially it's a tax-free wrapper for cash and shares, with a fixed limit of contributions each year. If you are a UK Mustachian, and not in emergency debt-elimination mode, you need to max out your ISA before you do anything else with your money, in my opinion.

The old ISA gave you a £11,520 contribution ceiling, up to 50% of which could be cash (the rest in shares). The changes have simplified the rules and extended the allowance, so now it's £15,000 in any combination of stocks and cash. And anything invested in an ISA remains tax-free forever, with the exception of dividends on shares (which nevertheless benefit from being capped at 10% tax, as opposed to up to 37.5% outside an ISA). With a couple, that's £30k a year you can plough into tax-free savings, or tax-efficent stocks.

Any UK Mustachians out there? Are you going to enjoy this new limit, or do you put your money first into property or other investments that can't be wrapped in an ISA?

[MarcherLady]

Hi Taffy,

Yes, all of my investments go into an ISA, and I've been waffling recently on my journal about whether to move cash out of my cash ISA into my S&S so this is a good development for me.  At the moment my Cash and S&S ISAs are with different providers, so I will be watching to see which of the two companies offers a better option, and putting all this year's subscriptions into that company.  I would also consider transferring my previous year's holdings to that supplier as well, if it made sense financially, to simplify the number of accounts and logons I need to keep track of.   Whether I can make full use of the new 15k annual limit is another matter, I'm certainly going to try!  - I have some stocks which are held in a non ISA vehicle, so I will probably move those into the ISA at the end of the 14-15 tax year if I haven't maxed out the limit in new investments by then.

[Squirrel away]

I think I'm going to wait until 1st July to see if there are better rates to open a Cash ISA up for 2014/15.

(I'm pretty clueless about the S&S ISA's but I'm reading Smarter Investing by Tim Hale at the moment.)

[kt]

I have maxed out my cash isa most years since I was 18. Will open a S&S account soon but am buying a house this year which will deplete savings somewhat!

[daverobev]

Expat Brit here.. I am *so* jealous! I would be shovelling cash into my ISA like crazy if I was at home, and just shovelling more of it in when the new ISA comes in.

In Canada we get a 'TFSA' which accumulates room (rather than being use it or lose it), but it's currently $5.5k a year (and with the CAD weakening, that's about 3k GBP...).

/cries

[Squirrel away]

I have maxed out my cash isa most years since I was 18. Will open a S&S account soon but am buying a house this year which will deplete savings somewhat!

Wow, well done, you must be very responsible to start saving so young.

House prices have gone crazy in London recently.

[Taffy]

House prices have gone crazy in London recently.

Yeah, that's what you get for being a global city with a reputation for not scrutinising rich foreigners too closely. Must be tough trying to be frugal there.

On your other point, I'd be surprised if the July changeover itself affects interest rates. Only thing that's going to mean significant movement on that score is the BoE raising the base rate. With a recovery underway that's going to happen at some point, the only question is: when?

kt: well done! That's an impressive record.

MarcherLady: thanks for pointing the way to your journal. Taking a look now ...

[warfreak2]

I think I'm going to wait until 1st July to see if there are better rates to open a Cash ISA up for 2014/15.

(I'm pretty clueless about the S&S ISA's but I'm reading Smarter Investing by Tim Hale at the moment.)

If you're going to buy stocks or shares at all, they should take priority over cash in tax-advantaged accounts.

[Squirrel away]

I think I'm going to wait until 1st July to see if there are better rates to open a Cash ISA up for 2014/15.

(I'm pretty clueless about the S&S ISA's but I'm reading Smarter Investing by Tim Hale at the moment.)

If you're going to buy stocks or shares at all, they should take priority over cash in tax-advantaged accounts.

I keep reading that but I still don't fully understand S&S ISA's.

[MarcherLady]

Londoner, the ISA is just a wrapper which you can buy shares or index funds through.  You pick a supplier (I use Halifax Online Share Dealing), then you subscribe cash into the ISA either once or many times a year, up the to total limit per annum (£15000 under the new rules).  Once the cash is in the ISA you can then buy stocks within the wrapper.  Your supplier will have rules about what investment vehicles you can buy into.  Once the purchases are made all Capital Gains (from price growth) are tax free, and dividends are only taxable at 10% - (or did that change in the budget too? I need to check, but if it changed it has done down).

You may only subscribe to one Cash and one S&S ISA a year (old rules) or one New ISA a year (as of the budget).   You have to be over 18 and a UK resident.

That's it, in a nutshell, the link Taffy included in his/her first post on this thread is a good introduction.  If you have specific funds you want to buy eg Vanguard, it makes sense to check with the provider before you open the account.  Halifax allows investment in a small number of Vanguard exchange traded funds. This is a guide to the online brokers and their fees:

http://monevator.com/compare-uk-cheapest-online-brokers/

[Squirrel away]

Londoner, the ISA is just a wrapper which you can buy shares or index funds through.  You pick a supplier (I use Halifax Online Share Dealing), then you subscribe cash into the ISA either once or many times a year, up the to total limit per annum (£15000 under the new rules).  Once the cash is in the ISA you can then buy stocks within the wrapper.  Your supplier will have rules about what investment vehicles you can buy into.  Once the purchases are made all Capital Gains (from price growth) are tax free, and dividends are only taxable at 10% - (or did that change in the budget too? I need to check, but if it changed it has done down).

You may only subscribe to one Cash and one S&S ISA a year (old rules) or one New ISA a year (as of the budget).   You have to be over 18 and a UK resident.

That's it, in a nutshell, the link Taffy included in his/her first post on this thread is a good introduction.  If you have specific funds you want to buy eg Vanguard, it makes sense to check with the provider before you open the account.  Halifax allows investment in a small number of Vanguard exchange traded funds. This is a guide to the online brokers and their fees:

http://monevator.com/compare-uk-cheapest-online-brokers/

Thanks.:) I know it is something I have to get into my head with the terrible interest rates on Cash ISA's at the moment.

[kt]

I know the new ISAs can be all-cash but I haven't heard any mention of S&S, will it still be possible to have a stocks and shares isa?

[Jill]

I'm assuming that you just open 'an ISA' and then you choose how much to save as cash, and how much to put into stocks and shares.

Also, hooray for the limit going up! I'm married so that means we can save up to £30,000 a year between us tax free, that's pretty great!

[MarcherLady]

From what I understand you will be able to invest both cash and S&S into just one ISA, with a total sub of 15000, which can be 100% cash, or 100% S&S or something in between.  Those will be the regulations.  However, as an ex-employee of a company that supplied S&S ISAs but which wasn't geared up to hold cash, I am guessing that the suppliers of the accounts might decide that their account will only accept either cash or S&S, and the customers will need to decide if they stay with that supplier or transfer to someone else.  The banks etc will be scrambling around this week to work out how the hell they can get their offerings up and running and adhering to the new rules in time for July, so you should see announcements coming out in next few weeks.   

[kt]

the new limit is great, i'm just about to get married so this definitely will factor into our planning.
the shared cash/S&S sounds tricky because i can't see it being possible to get both the best cash and the best S&S deal in one package. plus, if companies have new ISAs for stocks only or for cash only, will there be less choice for those who want both?
(i've not got a S&S ISA yet but was planning to open one this coming tax year)

[MarcherLady]

kt, yes, it's possible that you would need to pick and choose a supplier based on what your priorities are, and what their 'speciality' is.  A traditional S&S-only provider probably wouldn't offer a great interest rate, but would have a better range of stocks to choose from, while a company that hasn't offered S&S ISAs before (I can't think of one off the top of my head but I guess there might be some) would be the opposite. 

I would imagine that the main players (Post office, high street banks & B Socs etc) will offer both cash and S&S on or very soon after the regulations change, but the smaller players might decide to stick to one or the other.  However, the smaller players can sometimes offer better deals if you are certain you only want to stick to cash or S&S.

Another issue that needs to be worked out (by the Gov't and the providers) is Fixed Rate Cash ISAs, and what will happen to them.  My cash is in a 2 year fixed rate, which doesn't end until April 2015, so I won't be transferring out of that, but I won't be putting any further cash into it either. 

Wow, who knew I would have so much to say about ISAs! :-)

[kt]

thanks! very useful!
i guess being married/partnered could also be useful here as one of you could get the best cash (I keep my emergency fund and deposit savings in my ISA) and one a good S&S.

[MarcherLady]

I hadn't thought if that, it's a really good idea.

[redbean]

Hi Taffy,

Yes, all of my investments go into an ISA, and I've been waffling recently on my journal about whether to move cash out of my cash ISA into my S&S so this is a good development for me. 

What is S&S? :)

[MarcherLady]

"Stock and Share ISA" :-)  as opposed to a Cash ISA, which is really just a basic, tax efficient bank account.

[Squirrel away]

Right, now I have decided that I am going to open a cash and a S&S ISA in April and put half of our money in each. I want to build up our emergency cash a bit more as we have less than £10k in savings and I would feel more comfortable with 6 months emergency expenses.

I'm going to look on MSE to see which ISA's people are going for. I assume some people on here are members of MSE too. :)

[NearlyThere]

I welcome the budget with open arms. £30,000 per annum for us in tax advantaged accounts is huge.

I max our my S&S ISA first and foremost buying a very passive portfolio (Vanguard Lifestrategy 100) as early as I can in the year and forget about it. I don't care how the market is doing on a daily basis, as I can't change it.

I second www.monevator.com as a wealth of information on investing. I read the blog religiously and it gave me the knowledge/confidence to take my old Cash ISAs and put these into S&S's.

If you're saving for FIRE, keeping your money in a cash isa really isn't the most efficient way as the pitiful interest rate + inflation erodes the majority of interest made.