Interest on cash in a cash Isa is paid gross, whereas within a stocks and shares Isa the income is only paid gross on corporate and government bonds, on everything else, including cash, the income is paid net of basic rate tax but doesn’t incur higher tax rates.
Tom Stevenson, investment director at Fidelity Worldwide Investment, notes: “We would urge savers to make the most of this flexibility and consider if their savings are working hard enough to meet their goals. Those stuck in low-paying cash Isas should consider that equities could provide much greater potential for long-term growth and income.
“Savers have for too long been the losers from the low interest rate environment.
“It’s likely we will now see a proliferation of temporary bonus rates and would urge savers to look through these and consider how they can best achieve their long-term goals.”
There is a limit to the amount of money that can be parked in Isas, but these investment vehicles have their flexible aspects, for instance, an Isa can be transferred from one provider to another with all tax benefits retained.
Catherine Lafferty is a freelance journalist
The rise of the Nisa
The government announced iin the Budget 2014 that, from July 1 2014, Isas will be reformed into a new simpler product, the ‘New Isa’ (Nisa) with equal limits for cash, and stocks and shares. The Nisa will have the option to save the whole allowance of £15,000 in cash, stocks and shares, or any combination of the two.
Example options for investors:
• £15,000 to a cash Nisa and nothing to a stocks and shares Nisa
• £15,000 to a stocks and shares Nisa and nothing to a cash Nisa
• £5,000 to a cash Nisa and £10,000 to a stocks and shares Nisa
• £10,000 to a cash Nisa and £5,000 to a stocks and shares Nisa
• A combination of amounts between a cash and stocks and shares Nisa, up to the overall annual limit of £15,000
Key points
• The overall Nisa limit for 2014-15 will be £15,000, an increase of £3,480 from the 2013-14 limit.
• Investors are able to open one cash Nisa and one stocks and shares Nisa each tax-year. Once open, you can transfer your cash or stocks and shares Nisa between providers as often as you wish.
• From July 1 2014, existing Isas will automatically become a Nisa, with a higher limit and more flexibility.
• Investors are able to hold cash tax-free within a stocks and shares Nisa if the provider allows this.
• The list of qualifying investments for Nisas will be extended to include peer-to-peer loans. The government “will continue to explore further extending the list to include debt securities offered via crowdfunding platforms”.
Source: HM Treasury
