UK Treasury Unveils ISA Reforms

by Amanda Banks, Tax-News.com, London

04 April 2008

Angela Eagle MP, Exchequer Secretary to the UK Treasury on Wednesday reminded savers of the reforms to ISAs (Individual Savings Accounts), which take effect from April 6th, 2008.

From this date, she explained, ISAs will become simpler and more flexible, and the overall annual investment limit will increase from GBP7,000 to GBP7,200, with the new cash limit of GBP3,600 up from GBP3,000.

Ms Eagle announced that:

"The Government has introduced this package of reforms to make ISAs simpler and more flexible. This year, over 17 million existing ISA holders will benefit from these reforms."

"The reforms will also benefit all those people who are thinking about saving in an ISA for the first time. This move builds upon the success of ISAs, which this Government introduced in 1999 in order to develop and extend the saving habit and to ensure that tax relief on savings is more fairly distributed."

Under the reforms, ISAs will be available indefinitely, and will have no set end date.

The new structure and limits rules will mean that every adult has an annual ISA investment allowance of GBP7,200.

Up to GBP3,600 of that allowance can be saved in cash with one provider. The remainder of the GBP7,200 can be invested in stocks and shares with either the same or another provider.

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.

Additionally, 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 GBP7,200 annual ISA investment allowance in ISAs in that tax year, including up to GBP3,600 in a cash ISA.

In addition, all PEP (Personal Equity Plan) accounts will automatically become stocks and shares ISAs on April 6th, 2008, and become subject to ISA rules.

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