Ahead of the new tax year beginning on 6th April 2024, you’ll likely be considering your ISA options. From how to best utilise any remaining 2023/24 ISA allowance through to what you need to be aware of when choosing where to subscribe your upcoming reset allowance, there’s a lot to give consideration to.
Whilst the only significant change to ISAs announced in Chancellor of the Exchequer Jeremy Hunt’s Spring Budget was the introduction of the British ISA – which has now been delayed by at least three months – his November 2023 Autumn Statement brought with it a more substantial shake-up to the ISA market.
In order to be best prepared for the upcoming ISA season, here are four key ISA changes you need to keep in mind heading into the 2024/25 tax year.
1. The one of each type of ISA per tax year rule has been scrapped
At present, you are only allowed to subscribe funds to one of each type of ISA per tax year. Come 6th April 2024, this limit will be scrapped and it will be possible to open and subscribe to multiple of the same type of ISA each year (though you must still not exceed the £20,000 ISA allowance in doing so).
As an example, this means you could open two different Innovative Finance ISAs (IFISA) with different providers in the same year and contribute to both.
This will allow for even greater diversification within your ISA portfolio, enabling you to make your £20,000 annual ISA allowance further each year should you wish to do so.
2. You’ll be able to make partial transfers at any time
Currently, the ISA transfer rules are somewhat complex. As it stands, if you want to transfer funds from one ISA to another and the funds were originally subscribed in the current tax year, you must transfer the funds in full.
On the other hand, if you’re looking to transfer funds that were subscribed in a previous tax year, you can choose whether to transfer them in full or just in part.
However – in what looks to be an attempt at simplifying ISAs and the ISA transfer rules from the Government – as of 6th April, you will be able to opt to partially transfer an ISA regardless of when the funds were originally subscribed.
This means you will have more flexibility with your capital and the ability to gain exposure to a larger spread of assets.
For example, let’s say you subscribed your full £20,000 allowance to a Cash ISA at the beginning of the 2024/25 tax year in April but you were able to take on more risk in the search for higher returns. Come June, if you had found an appropriate IFISA targeting attractive returns, you could choose to transfer £10,000 from the Cash ISA to the IFISA even though it has been originally subscribed in the current tax year.
3. A boost to the IFISA
When considering that IFISA returns have outperformed both those earned on a Cash ISA and Stocks and Shares ISA over the past year (though do keep in mind the differing risk profiles of each of these products), it’s clear they’re an important investment consideration for experienced investors.
Interestingly, the Government exhibited confidence in the often underutilised member of the ISA market when it was announced in the Autumn Statement’s accompanying documents that the list of IFISA-eligible investments was expanding to include long-term asset funds and open-ended property funds with extended notice periods.
The IFISA’s underlying assets can already include the likes of asset-backed property bonds – which often target returns of up to an attractive 10% p.a. – and SME loans, and with the newly added eligible assets paired with soon having the ability to subscribe to multiple IFISAs per year, the opportunities to use this tax-free product to its full potential are plentiful.
4. No need to reapply for an ISA that has been left unused
If you have an ISA that has been left unused for one tax year or more, you must currently effectively reapply for that ISA should you wish to use it again.
This is another rule that will soon be scrapped, meaning that your ISA(s) will now remain open and be ready and waiting for you to resume use whenever you wish.
Maximising your ISA allowance now and in the new tax year
Whilst you’ll be seeing a number of welcomed ISA changes as we head into the new tax year, one that did not come to fruition in the Autumn Statement nor the Spring Budget was an increase to the annual ISA allowance.
Instead, it was revealed that the allowance would once again be frozen at £20,000 for 2024/25, where it has sat since its last increase in 2017/18. Though this is somewhat disappointing, it simply means that using the still-generous £20,000 tax-free allowance to its maximum is crucial.
Key ways of doing so include utilising the allowance in full each year when possible – remember: you can’t carry unused allowance over into the next tax year, so if you have any remaining for 2023/24, it’s time to think about putting it to use – and making the most of ISA transfers to ensure your capital continues to work hard to meet your goals.
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