ISA changes in the 2024-25 tax year – are you up to speed?
In the Autumn Budget in October 2024, Chancellor Rachel Reeves decided not to make any changes to Individual Savings Accounts (ISAs). However, the 2024-25 tax year had already seen the introduction of some ISA reform, announced by her predecessor Jeremy Hunt a year earlier. This article looks at the current state-of-play for the tax-efficient savings vehicles in the year the ISA marked its 25th anniversary.
The end of the single ISA limit
Previously, you could only pay into one ISA of the same type each tax year, but this is no longer the case. From 6 April 2024, you can pay into as many Cash ISA, Stocks and Shares ISA, and Innovative Finance ISA accounts as you like as long as you meet the eligibility criteria for each type and don’t pay in more than your total annual allowance. A limit of one Lifetime ISA remains, but if you invest in a Lifetime ISA over a number of tax years you could choose different providers for these.
The change could help you make better use of the £20,000 yearly ISA allowance. For example, cash savers might be in an improved position to take advantage of better interest rates when they pop up. Meanwhile, stocks and shares investors may have greater freedom to experience what other providers have to offer, such as fund ranges.
Exploring what’s available elsewhere could help you find a better fit. Just make sure to keep track of your different ISA accounts and what you’re paying in, so as not to exceed your £20,000 yearly ISA allowance.
In a nutshell, the system aims to be less restrictive and hands more power back to you. Less red tape could also mean increased competition amongst providers, which could be a good thing for customers.
The value of your Stocks and Shares ISA investment can go down as well as up so you might not get back the amount you put in. Also, tax rules can change and the impact of taxation depends on your circumstances and where you live.
Say hello to more flexible partial transfers
Savers are no longer inhibited by the rule that you can only transfer partial amounts on money you’ve paid in before the current tax year. If you wanted to transfer money you’d paid in during the current tax year, you’d have to do so in full, or transfer nothing at all. But from 6 April 2024, partial transfers to other ISAs are allowed, regardless of when the money was paid in. This will remain at ISA providers’ discretion, however.
Even so, it’s a refreshing change and has the potential to make everything a lot more straightforward.
Remember, before taking any action it’s important to check with your new and existing ISA providers for any charges or other restrictions that may apply if you transfer your investment from one provider to another. Please note, any money you take from your ISA will reduce the value of your investment.
A change in minimum age for cash ISAs
The minimum age for opening a Cash ISA has changed from 16 to 18. This brings it in line with other types of ISA where the existing minimum age was already 18. Young people will continue to be able to pay into a Junior ISA until they reach 18, for which the tax-efficient limit remains at £9,000.
More flexible investing
Under the previous tax year rules, those investing in a Stocks and Shares ISA needed to hold at least one full share in a company. This can be pricey – considering a single share in some of the biggest companies can cost hundreds of pounds.
Going forward, new ISA rules mean you’ll be able to hold ‘part of a share’ – otherwise known as a ‘fractional share’. This could lead to improved investment opportunities. Again, this will remain at ISA providers’ discretion, certain conditions will have to be met and what’s offered will vary.
No need to ‘reapply’
If you held an ISA but hadn’t contributed any payments during the previous tax year, you would previously have had to ‘reapply’ in order to begin doing so again.
It was a confusing rule and one that has now been abandoned. Although, like some of the changes previously mentioned, it will remain up to ISA providers whether or not to implement this. That being said, it’s still a positive tweak and could make things a lot more hassle free.
A simpler system
There are lots of positives in the new rules. And while certain aspects aren’t mandatory for ISA providers to adopt, in our view, it feels like a step in the right direction. The ISA allowance for 2024-25 remains fixed at £20,000 of which you can continue to split between the different ISA types – Cash, Stocks and Shares, Innovative Finance and Lifetime. The annual limit you can pay into a Lifetime ISA has also remained the same at £4,000.
In the Autumn Budget, Ms Reeves announced that the annual subscription limits will remain at these levels until 5 April 2030.
Plans for British ISA scrapped
In the 2024 Spring Budget, Jeremy Hunt had announced that the launch of a new type of ISA – the UK ISA – may be on the horizon. The aim was to encourage investment into UK companies with an additional tax-efficient limit of £5,000 on top of the existing £20,000 ISA allowance. However, as widely expected, Ms Reeves confirmed Labour’s decision to scrap the plan.
Learn more about how ISAs work
If you’d like to brush up on your ISA knowledge, MoneyHelper, is a great place to start. You’ll find useful guides on the different types available and what they mean for your money. There’s also a range of bite-sized resources and tools designed to help you get to grips with other financial topics.
Get in touch
Although this article provides a recap of the changes, it’s important to understand how the new ISA rules might affect you. If you’d like to talk through the options, based on your specific circumstances please don’t hesitate to contact your financial adviser.
The views expressed here should not be taken as a recommendation, advice or forecast.
Please remember that with investing, the value of your Stocks and Shares ISA investment can go down as well as up so you might not get back the amount you put in. Get in touch with your financial adviser today for further details or advice tailored to your personal circumstances and goals.
