ISA’s never got a mention during the actual budget speech which is probably due to how ‘unsexy’ the amendments and changes to some of the rules seem. As unsexy as they may be for the dispatch box in parliament, we thought it was only right to give them some attention. So here we are, let’s have a look at some of these changes and what they might mean going forward.
Partial transfers permitted (from April 2024)
As it says, this gives individuals the ability to now partially transfer funds between providers rather than on an all or nothing basis. Clients might now transfer part of an existing cash ISA to an investment ISA, to maintain a tax-free emergency fund while also investing any surplus. It could of course go the other way with clients able to move part of an investment ISA to cash ISA and this could be useful for newly planned short-term expenditure needs or de-risking in anticipation of possible decumulation. We do however see the main implication being on Inheritance Tax planning.
Clients can now move part of a traditional investment ISA over to an AIM ISA to get a really targeted IHT strategy. If it makes more sense in the context of the clients overall financial position to transfer £100k of a £200k to an AIM ISA, you can now do that.
Multiple subscriptions permitted (from April 2024)
Individuals will not be forced to continue contributing to the same ISA (or transferring it in full to another ISA to contribute elsewhere) as the restriction of contributions is being removed.
This would make it possible for individuals to redirect regular ISA contributions to a different provider while keeping an existing ISA open and effectively paid up. It might be something that crops up for clients, think those who have a Hargreaves Lansdown ISA they self-direct and want to keep.
Innovative Finance ISA changes
The scope of these have been expanded, with Long-Term Asset Funds (LTAFs) and open-ended property funds with extended notice periods able to be held in these from April 2024. We don’t expect this to make much impact in the advised space, but still, worth knowing.
Raising the age of adult ISAs to 18
The quirk that allowed 16 and 17 years old to access adult cash ISAs and JISAs will be effectively removed from April. Cash ISAs will move to an age 18 basis meaning the only options for those under this age are existing Child Trust Funds (CTFs) or JISAs. This closes the door on the ability to contribute £29,000 in the two tax years where the child is 16 and 17 years old.
Any clients with children or grandchildren with unused cash ISA allowances might want to consider making use of the £20,000 this tax year before it is effectively lost for a year. It obviously won’t affect current 17-year-olds so is really applicable to those 16 this tax year.
Going forward, it’s worth knowing now that it is CTF/JISA until age 18.
Permitting fractional shares
Instead of clamping down on the use of fractional shares, which was talked about over the last few months, there will be a consultation on allowing ‘certain’ fractional shares to be held in ISAs. It’s unclear how much will be covered by the phrase ‘certain fractional shares’ which means this will be one that we have to wait and see on.
The real reason ISAs never got a budget mention is the lack of change in the allowances. 2024/25 will continue to provide:
- £20,000 for Cash / Stocks and Shares / Innovative ISAs
- £4,000 (plus £1,000 bonus) for Lifetime ISAs
- £9,000 for Junior ISAs
- £9,000 for Child Trust Funds
And so, to conclude…
The changes are largely positive for clients. There is a bit more flexibility to split out large ISA portfolios whether for risk reasons or in pursuit of IHT planning strategies. The changes permitting multiple contributions in a tax year also provide more flexibility which might come in useful in certain scenarios.
The rails that ISAs run on has tended to seem a bit archaic in recent years and these changes look to be bringing some modernity to the tax wrapper. Within the announcements there also includes the aim to ‘digitise the ISA reporting system’ so we can hopefully see how this is changing and likely to continue to change. Who doesn’t love a bit of digital transformation?!
Technical Specialist, The Verve Group