New ISA rules

Common questions

What are the key changes I should know about?

On 6 April 2008, the annual ISA investment allowance will be raised to £7,200. Up to £3,600 of that allowance can be saved in cash with one provider. The remainder of the £7,200 can be invested in stocks and shares with either the same or a different provider.

ISA savers will be able to invest in two separate ISAs each tax year; a cash ISA and a stocks and shares ISA. Mini and Maxi ISAs will no longer exist: All Mini and Maxi Cash ISA's will automatically become cash ISAs. All Personal Equity Plans (PEPs) will automatically become stocks and shares ISAs

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What is the new structure and limits?

Every adult has an annual ISA investment allowance of £7,200. Up to £3,600 of that allowance can be saved in cash with one provider. The remainder of the £7,200 can be invested in a stocks and shares ISA with either the same or another provider.

Example 1
An individual saves £1,200 in a cash ISA at the beginning of the tax year. In the same tax year they could save up to another £6,000 in ISAs. This could be up to £2,400 in the same cash ISA or up to £6,000 in a stocks and shares ISA with either the same or another provider.

Example 2
An individual sets up a monthly direct debit for £500 into a stocks and shares ISA with one provider - over the year as a whole they pay in £6,000 (12 x £500). In the same tax year they could save up to another £1,200 in ISAs, either the same stocks and shares ISA or a cash ISA with either the same or another provider.

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What are my ISA investment options now?

From April 2008 you will be able to invest in one cash and one stocks and shares ISA each tax year.

The annual ISA investment allowance has now risen to £7,200 per tax year. Up to £3,600 of that allowance can be saved in cash with one provider. The remainder of the £7,200 can be invested in a stocks and shares ISA with either the same or another provider.

For example, you can choose to save £1,000 in a cash ISA with one provider and £6,200 in a stocks and shares ISA with a different provider.

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What happens to my existing ISAs?

All Mini and Maxi stocks & shares ISA's will automatically become stocks & shares ISAs

  • Mini cash ISAs, TOISAs and the cash component of a maxi ISA will all be reclassified as 'cash ISAs'.
  • Mini stocks and shares ISAs and the stocks and shares component of a maxi ISA will be reclassified as 'stocks and shares ISAs'.

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How do I transfer money saved in previous tax years from cash ISAs into stocks and shares ISAs?

Savers are able to transfer some or all of the money saved in previous tax years from cash ISAs to stocks and shares ISAs without affecting their annual ISA investment allowance.

Example
An individual has a total of £9,000 saved in cash ISAs from previous tax years. They plan to invest their full current year ISA annual investment allowance of £7,200 in a stocks and shares ISA. In the same tax year they could also transfer some or all of the £9,000 held in cash ISAs in to any stocks and shares ISA(s).

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How do I transfer money saved in the current tax year from cash ISAs into stocks and shares ISAs?

Savers are also able to transfer money saved in the current tax year in cash ISAs to stocks and shares ISAs. Such transfers must be the whole amount saved in that tax year in that cash ISA up to the day of the transfer.

Once money saved in the current tax year is transferred from a cash ISA to a stocks and shares ISA, it is treated as if it had been invested directly into a stocks and shares ISA in that tax year. The saver is able then to still save up to the full remaining balance of their £7,200 annual ISA investment allowance in ISAs in that tax year, including up to £3,600 in a cash ISA.

Example
An individual saves £3,600 in a cash ISA at the beginning of a tax year. They could transfer the whole £3,600 to a stocks and shares ISA. The individual could then still save up to another £3,600 into their ISAs, either the same stocks and shares ISA, a cash ISA or a combination of both.

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How much can I transfer from my cash ISA to a stocks and shares ISA?
  • You can transfer some or all of the money you have saved in previous tax years without affecting your annual ISA investment allowance.
  • Savers are also able to transfer money saved in the current tax year. Such transfers must be the whole amount saved in the current tax year up to the day of the transfer.
  • These transfers are subject to the terms and conditions of your ISA providers.

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How do I transfer the money in my cash ISA to a stocks and shares ISA?
  • Exactly the same way as you would transfer your ISA to another provider.
  • You will need to select the stocks and shares ISA provider that you want to have your ISA with. This can be your existing provider if they offer a stocks and shares ISA, or you can appoint a new provider.
  • You then ask the new provider to arrange the transfer.
  • You must not withdraw the money and invest it in your stocks and shares ISA yourself, as it will count against your annual ISA investment allowance.

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What happens to my PEP?

All PEP accounts will automatically become stocks and shares ISAs on 6 April 2008, and become subject to ISA rules.. You will be able to invest in this re-labelled PEP,which is now a stocks and shares ISA, as long as you haven't subscribed to another stocks and shares ISA during the current tax year.

Example
An individual has a number of different PEPs from previous tax years. The PEPs will become stocks and shares ISAs on 6 April 2008. The individual does not have to do anything. They could still then invest up to their full annual ISA investment allowance of £7,200.

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Will I have to merge my PEP investments with my stocks and shares ISA investments?

No, your existing PEP will just become a stocks and shares ISA, but you can merge the two if you so wish. The changes align the rules for the two schemes.

You will now be able to invest in the full range of wider qualifying ISA investments, including insurance and stakeholder products.

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So from now on how will the interest I receive from any un-invested cash held in my former PEP be treated?

The ISA manager must deduct a flat rate 20 per cent charge and pay it to HM Revenue & Customs. This rule has always applied to stocks and shares ISAs and will now apply to interest earned on uninvested cash formerly held in PEPs.

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I have transferred all of my current year cash subscription to a stocks and shares ISA, can I make any further payments to my ISA this tax year?
  • Yes - provided you haven't already used up your annual ISA investment allowance of £7,200.
  • When you transfer your current year cash ISA to a stocks and shares ISA it is as if that cash ISA had never existed. Any money you saved up to the date of transfer will be treated as if you had invested that money directly to the stocks and shares ISA.
  • For example, if you had saved £2,000 in a cash ISA and then transferred it to a stocks and shares ISA you would be able to make further investments totalling £5,200 in the year. You can either invest all of the £5,200 in a stocks and shares ISA or you could save up to £3,600 in a cash ISA or a combination of both.

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Can I also transfer the monies I hold in my TOISA to a stocks and shares ISA?

Yes you can. A TOISA is a cash ISA.

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Can I transfer the monies I have invested in my stocks and shares ISA to a cash ISA?

No. The ISA rules are being changed to allow the transfer of monies saved in a cash ISA to a stocks and shares ISA but not vice versa.

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Can I still transfer my cash or stocks and shares ISA held with one provider to another provider?
  • Yes. The rules on transferring like-for-like ISAs between providers are not changing.
  • For example, you can still transfer your cash ISA held with one provider to a different cash ISA provider, without affecting your annual ISA investment allowance.
  • You must ask the new cash ISA provider to arrange the transfer.
  • You must not withdraw the money and invest it in your cash ISA yourself, as it will count against your annual ISA investment allowance.

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Will I have to sign any new forms if I want to continue paying in to my ISA?
  • No - as long as you have
    a) saved in that ISA in the previous tax year
    b) signed a continuous application form for that ISA,and
    c) have not already saved in another ISA of the same type (cash or stocks and shares) during the current tax year.
  • However, if you transfer your ISA to a new provider, you did not sign a continuous application form, or you did not save in your ISA in the previous tax year then you will have to complete a new ISA application form.

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Will the qualifying investments of the ISA be changed?
  • No. The qualifying investments rules of the ISA will not change.
  • But former PEP investments will now be able to invest in the full range of wider qualifying ISA investments, including insurance and stakeholder products.

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Where can I get further information?

Further information can be found on the HM Revenue & Customs wesbite http://www.hmrc.gov.uk/

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