“Over the past 20 years of the ISA, the turnaround has not only been massive but transformative.”
Those are the words of former prime minister Gordon Brown who, as chancellor, launched Individual Savings Accounts (ISAs) back in 1999.
ISAs were introduced to support and encourage UK residents in preparing for their financial future by investing and saving in a tax-efficient way.
There are four different types of adult ISA to choose from, each with its own range of benefits for savers and investors:
- Cash ISA
- Stocks and Shares ISA
- Innovative Finance ISA (IFISA)
- Lifetime ISA (LISA).
Every year, you benefit from an ISA allowance which outlines the maximum you can save within the tax-free wrapper. For the current 2024/25 tax year this subscription limit is £20,000 across all adult ISAs. That means you can open multiple ISAs within a single tax year, but your overall payments can’t go over £20,000, with some individual contribution limits applying to certain accounts.
What you may not know is that former Conservative chancellor, Jeremy Hunt, announced updates to ISA rules in his 2023 Autumn Statement that came into effect on 6 April 2024.
These are designed to increase saving and investing opportunities within ISAs. Yet according to FTAdviser only 8% of advisers have seen an increase in clients paying into an ISA despite the new, more flexible rules.
If you already save and invest, you’re probably familiar with ISAs and their advantages. But with the new rules in place, here’s a recap of the five recent changes to ISA regulations that you could benefit from.
5 key changes to ISAs in the 2024/25 tax year and how you could take advantage of them
1. You can now open multiple ISAs of the same type
Prior to April 2024, you could only hold one of each type of ISA. However, as of the 2024/25 tax year, you will be able to split your ISA allowance across multiple ISAs of the same type as long as your total contributions remain within the £20,000 limit.
As a result, you’ll have more flexibility when tailoring your savings and investments to your specific needs and priorities. For instance, you could save some cash in an easy access Cash ISA while rerouting a portion of your savings to a fixed-rate Cash ISA.
When opening a new ISA, remember that you must save or invest your funds by 5 April (the last day of the tax year) for your contributions to count towards that year’s allowance. Crucially, ISAs have a “use it or lose it” allowance, meaning you can’t roll your unused allowance over to the following tax year.
It’s still worth speaking to a professional when taking out new ISAs – each provider has its own specifications, and it’s important to consider your long-term financial plan when saving and investing your hard-earned funds.
2. You can now complete partial transfers
Before the 2024/25 tax year, partial transfers of ISA savings or investments weren’t usually possible. Now, most ISA savers can complete partial transfers which means you can transfer a portion of your savings from one ISA provider to another, no matter when the money was paid in.
This means you now have more flexibility, with the option to move some of your current ISA subscriptions around depending on your situation, any opportunities that arise, and what’s appropriate for your financial plan.
Like all accounts, rules vary between providers, so it may be prudent to consult your financial planner before completing a partial transfer.
3. You may no longer need to reapply for dormant ISAs
Previously, if your ISA has laid dormant and unused for one tax year, you would have to go through the inconvenience of getting in touch with your provider to open a new ISA.
Now, even if you haven’t contributed to an existing ISA, it could remain open, and you can carry on contributing in the subsequent tax year without having to send HMRC a new application. This cuts down on unnecessary administrative tasks and helps you reactivate unused ISAs straight away.
Bear in mind that, according to HMRC, an ISA is considered fully dormant if it’s been inactive for 15 years.
4. You can purchase fractional shares within your ISA
Fractional shares are portions of a company’s shares that are smaller than a whole share. Historically, you haven’t been able to hold fractional shares in an ISA but as of April 2024, you can.
This makes diversification easier and allows you to invest in bigger companies with expensive share prices without having to pay the amount required for a full share.
5. You now need to be 18 to open a Cash ISA
The minimum age for opening a Cash ISA is now 18 years old.
This change will make Cash ISAs consistent with the existing age requirements for Stocks and Shares ISAs, Innovative Finances ISAs, and Lifetime ISAs. It is being implemented transitionally, meaning that ISA providers have until 6 April 2026 to comply with the new, higher age limit for Cash ISAs – and those aged 16 or 17 with existing Cash ISAs can still access them as normal.
However, if you have children or grandchildren turning 16 or 17 this year, they could instead save into a Junior ISA (JISA) which has an annual tax-free allowance of £9,000 as of the 2024/25 tax year. Once they turn 18, their account will become an adult ISA.
Get in touch
ISAs can be a fantastic way to save and invest tax-efficiently, forming an integral part of your financial plan and helping you achieve your goals.
What’s more, working with a financial planner could allow you to form a robust financial plan that incorporates ISAs and prioritises tax efficiency.
Please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.