Government increases allowance and tax-free benefits of ISAs |
Posted: January 2, 2015 |
In the March 2014 Budget, the Chancellor of the Exchequer George Osbourne announced a major shake-up to the country’s ISA system, which merged Cash and Stocks and Shares ISAs together. This “New ISA” enabled savers to benefit from a new combined total annual tax-free allowance of £15,000, which was instead of the previous £11,520 for a Stocks and Shares ISA and £5,760 for a Cash ISA. In the first month after its launch in July, a total of £5bn was invested in new ISAs and Osbourne said the move had been “hugely popular.” Given this increased interest in saving, the Chancellor announced even more improvements to the ISA system in his Autumn Statement. Bigger allowance and tax-free status While it is not a huge increase, the ISA limit will rise from £15,000 to £15,240 next April while the annual allowance for Junior ISAs and Child Trust Funds also sees improvement, from £4,000 to £4,080. However, the biggest and most beneficial news for savers was that ISAs would retain their tax-free status when passed onto spouses after the holders’ death. Previously, ISAs lost their tax-free status. Danny Cox, financial planner at Hargreaves Lansdown, said: "Couples almost invariably manage their money jointly using individual tax wrappers such as ISAs to shelter their savings and investments from tax. This change has righted a wrong in the tax system which was the source of deep frustration and additional cost for surviving spouses.” Administration period Most recently, the government also revealed it would extend tax breaks during the period when deceased savers’ estates are being administered. This comes after a consultation on its Finance Bill found that tax should not be chargeable on the deceased’s savings between the period of death and the assets being transferred to the surviving spouse. The government noted: “The government will continue to examine the issue of taxation of former ISA assets during the administration of the estate, and will look to legislate in the next parliament to extend the current ISA tax advantages into this administration period.” Reacting to this news, Cox added: “The period between death and distribution is typically around three months but can be much longer, particularly where an estate is complex involving business or illiquid assets. Extending the tax wrapper during this period makes absolute sense.” Potential and future developments While these changes to the ISA limit and tax-status of savings are good news for almost everyone, the government also revealed it would consult on whether to allow crowd funded debt-based securities into ISAs and how this could potentially be implemented. Although a suggestion that plans to cap the lifetime allowance for ISAs did not come to fruition, this may still happen depending on how well the government’s new system performs. Even so, May’s General Election could prove to be too much of a distraction. In other money news, Osbourne also confirmed in his Autumn Statement that the 55 per cent death tax when transferring pension pots after death would be abolished.
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