Unlike some other aspects of tax, there is no carry-over or carry-back when it comes to ISAs. Every year 5th April brings with it a complete reset of ISA allowances, so even if you maxxed out on the previous year’s allowances on the fourth, you can do it all again the very next day.
Although there have been significant changes to other aspects of tax, ISAs have remained largely unchanged as we move into a new tax year.
Chancellor Jeremy Hunt’s spring Budget did introduce the concept of a ‘British Isa’, which will see an additional £5,000 on top of the existing £20,000 annual ISA allowance, providing that cash is invested in UK companies. But we have no detail on this yet, the consultation process has only just begun to look into how it might work, and the earliest we are likely to see such as ISA available is 2025.
There is one small change for the new tax year, which has introduced a new element of flexibility into those who invest in stages across the year. Previously, once you had invested part of your ISA allowance in a cash or a stocks and shares ISA, then subsequent investments in each in the same tax year had to be with the same provider. From this year you can pay into as many different ISAs with as many different providers as you like, provided the total invested does not exceed the annual allowance of £20,000.
With many commentators predicting that interest rates will start to fall during 2024, the decision on the balance between cash and stocks and shares ISAs is an interesting one at the moment.
If you are prepared to lock into a one year cash ISA, rates of between 4% and 5% are available, which is ahead of inflation. If this is the way you are heading, it would be as well not to hang around, as these kind of rates are unlikely to be available for much longer.
That said, stocks and shares have also performed very strongly in the last 12 months, and if you are thinking in the long-term, equities have historically outperformed cash (although as we all know, past performance is not a guarantee of future success, and unlike cash ISAs, the value of stocks and shares ISAs can fall).
Wherever you are considering cash or equities, the tax-exempt nature of ISAs make them a very attractive vehicle for investing, with no tax on UK income and no capital gains tax either – and no need to declare income from ISAs on your tax return.
Could you benefit from speaking to an adviser?