More for your money

03 July 2014

Saving just got a whole lot NISA

There is a fine balance between making savings and investment options available to staff and making recommendations. This is often a point of concern for employers, who cannot and should not be expected to provide financial advice. However, as part of their wider commitment to providing a duty of care to their employees, they may wish to support their financial planning. 

ISAs have always sat neatly alongside more traditional benefits, such as pensions and share plans, and the new ISA, ‘NISA’ announced in the 2014 budget, with its improved flexibility, has become a more interesting proposition.

As part of the Budget announcement in March of this year, the Government introduced changes to ISAs, which give savers and investors greater choice and flexibility about when and where they place their funds. This in turn will help to reduce employers’ concerns about appearing to be directing staff down a certain savings route.

ISAs in the corporate world have a number of potential benefits for employees. They can provide them with ongoing protection from tax when a share plan matures, enable them to diversify from a single stock holding to a risk-managed portfolio, allow them to work towards a source of tax-free income in future years* and, since income can be taken out at any time, they are less restrictive than a pension.

Cash ISAs are low risk, but at the same time, they offer lower returns. Stocks and Shares ISAs are higher risk, but they have the potential for higher returns on your investment. With this greater flexibility the NISA allows employees to choose the savings and investment combination that best suits their needs, and provides them with the opportunity to make changes throughout the tax year. Their flexibility should give greater comfort to employers who wish to include ISAs in their employee benefits offering.

Outlined below are some of the key features of the NISA, which come into force on 1 July 2014.

Allowances

From 6 April until 30 June 2014 the new allowance will be £11,880.  From 1 July 2014 until 5 April 2015 it will increase to £15,000.

It will also be possible to split the ISA allowance in any way between a Cash ISA and a Stocks and Shares ISA. Previously, savers had to use all of their ISA allowance in a Stocks and Shares ISA or use a maximum of 50% in a Cash ISA, with the remainder in a Stocks and Shares ISA.

The Junior ISA limit will also increase to £4,000.

Funds transfers

It will be possible to transfer funds from a Stocks and Shares ISA to a Cash ISA, and vice versa, from July. Previously it was only possible to transfer funds out of a Cash ISA into a Stocks and Shares ISA.

Tax-free interest in Stocks and Shares ISAs

Interest earned on cash held in a Stocks and Shares ISA will no longer be taxed. 

ISA allowances

Stocks and Shares ISA limit:

6 April 2014 – 30 June 2014: £11,880 (less any contributions made to a Cash ISA)

1 July 2014 – 5 April 2015: £15,000 (less any contributions made to a Cash ISA)

Cash ISA limit:

6 April 2014 – 30 June 2014: £5,940 (less any contributions above £5,940 made to a Stocks and Shares ISA)

1 July 2014 – 5 April 2015: £15,000 (less any contributions made to a Stocks and Shares ISA)