ISA to NISA | AAG Wealth Management

ISA to NISA

Posted: July 4, 2014

This year, saw George Osbourne announce one of the most radical budgets for savers announced earlier this year.

Osbourne’s 2014 Budget speech outlined measures to assist savers at every stage of their life and, whilst undoubtedly the Pension changes grabbed the headlines, the simplification of ISAs was not far behind.

The creatively named NISA (New ISA) see’s the distinction between cash and stocks & shares scrapped, as well as greater flexibility on transfers. But the biggest bonus for savers is the significant increase to the annual subscription limit, from £11,880 (limit of £5,940 in cash) to £15,000.

These major reforms, were welcomed by the 24 million people in the UK already saving into an ISA, as they are given the freedom to choose how to hold their money and benefit from the higher annual limit. The British Bankers Association reported that £3.7 billion had been held back over the past couple of months, in the run up to the launch of the NISA, which suggests people are waiting to transfer their funds from other savings vehicles in an attempt to make the most of the tax free wrapper.

The Opportunities
Research, carried by Scottish Widows, suggests that those who can afford to save are saving more every year, with average savings having increased for two years in a row. Interestingly, whilst almost half of the UK population has a Cash ISA, only 13% have a stocks & shares ISA. The changes signals an increase of two and half times in the amount that can be saved into an ISA, which could be appealing to those that want to remain invested in cash.

However, cash deposits have offered dire returns over the past five years, as that the Bank of England has held the base rate at 0.5%. And, although Mark Carney (the Governor of the Bank of England) indicated that rate rises could happen “sooner than markets expect”, which has been broadly translated by many to mean this year rather than next, he did emphasise that any increases would be “gradual and limited”.

The reality of a slow and incremental increase in the base rate is that returns from cash deposits are likely to remain negligible. Since the start of the new tax year, Britain’s lenders have been locked in a competitive spiral of rate cuts that have squeezed deposits even further, to stem a rush into their best-buy products. Furthermore, the present level of returns on the majority of cash savings is not sufficient to protect their value from inflation. Barely half of the Cash ISAs on the market currently achieve this goal, according to Moneyfacts (June 2014), which is clearly not what savers might expect from the most tax advantaged home for their cash.

However, as NISAs can now be made up of both Cash and Stocks & Shares, there is more opportunity for savers to become an ISA millionaire.

If you invest your full allowance (£15,000) every year into a Stocks & Shares ISA, for the next 30 years, and your investment grows by a relatively modest rate of 5% per annum, your overall investment of £450,000 will be worth £1 million.

Whereas, if this same amount is saved into a low interest Cash ISA account, with an interest rate of just 1.5%, the same overall investment would only create a savings pot of £ 568,000.

The increased limit, combined with compound interest, clearly makes NISAs an appealing tax efficient solution for long term savers, especially those that have been affected by the reduction in pension allowance limits.

It’s clear that the new rules broaden the planning possibilities available to savers and investors. However, the biggest opportunity by far, is simply to take advantage of the new limits.

The Facts:

  • Tax free limits increased to £15,000 (from £11,880) from the 1st July 2014.
  • Any amounts paid into a Cash or Stocks & Shares ISA since 6 April 2014 will count towards the NISA limit.
  • Cash and Stocks & Shares can be held in either a single NISA account or separate accounts.
  • Transfers from Cash to Stocks & Shares and vice versa is possible with a NISA.
  • There is no limit to the number of transfers.
  • 16-18 year olds can invest up to £15,000 in a NISA, but only the cash component (however, parental settlement rules, mean this isn’t an opportunity for wealthy parents to shelter more cash).

 

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of AAG.

Alexander Associates Group (AAG) is a holistic Wealth Management group and provider of a wide range of complementary services. The wealth management advice, for both individuals and corporates, is provided by AAG Wealth Management, a Principal Partner Practice of St.  James’s Place Wealth Management. Other services offered by AAG fall outside of wealth management advice and are separate and distinct to the services offered by St. James’s  Place. They are not covered by the St. James’s Place guarantee*, which is solely reserved  for wealth management advice provided by representatives of AAG Wealth Management.

*St. James’s Place guarantees the suitability of the advice given by members of the St. James’s Place Partnership when recommending any of the wealth management products and services available from companies companies in the group.

AAG Wealth Management represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The `St. James’s Place Partnership’and the titles `Partner’ and `Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

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