Three updates to ISA rules you need to know about
Changes to individual savings account (ISA) rules coming into effect from 6 April 2024 will bring three important updates to stocks and shares ISAs. Learn what these are so you can be prepared for the changes.
What is an ISA?
An ISA is an Individual Savings Account and was first introduced in the UK in April 1999 to give people a tax-efficient way of saving for their future. Back then, you could only save up to £3000 in a cash ISA or £7000 in a stocks and shares ISA.
Fast-forward to today and the total annual allowance for the tax year (6 April 2023 to 5 April 2024) has grown to £20,000, while the number of different types of ISAs has also expanded. There are four types of ISAs available to adults in the UK now: a cash ISA, a stocks and shares ISA, an innovative finance ISA and a lifetime ISA.
At the moment, you can split your £20,000 annual allowance among the four different types of ISAs, but not into more than one ISA of the same type in the same year. This effectively enables you to open four separate ISAs per tax year – one of each type. All payments, however, must remain within the overall ISA limit of £20,000 collectively per year.
What is a stocks and shares ISA?
In a stocks and shares ISA, you can buy and sell shares in companies, investment trusts and exchange-traded funds (ETFs), as well as more traditional funds such as unit trusts and open-ended investment companies (OEICs).
The key benefit of using a stocks and shares ISA is that any profits you make are free from capital gains tax, as are the dividends you get. This means that you get to keep all your returns, which enables your investments to grow faster than a non-tax-wrapped investment account.
Stocks and shares ISAs are flexible, too; any money you’ve paid in during the tax year is free to be withdrawn and replaced – if you do so before the end of that tax year.
You can open a stocks and shares ISA if you’re a UK resident and over the age of 18.
Changes to ISAs from April
Several administrative changes were announced by Jeremy Hunt in his Autumn Statement which will take effect from 6 April 2024. We’ve highlighted the key changes which we think will most impact your stocks and shares ISA:
- Freeze on contribution limits: for the 2024/25 tax year, the annual contribution limits for all types of ISAs will remain the same as 2023/24
- Multiple subscriptions: perhaps the most significant change for 2024 is that you’ll be able to open and contribute to multiple ISAs of the same type in the same tax year
- Partial transfers: you’ll be able to partially transfer funds between different ISA providers within the same tax year. Currently, if you were to transfer out of an ISA, you’d have to move the entire balance
Changes impacting bed and ISA
The CGT annual exemption will be halved from £6000 to just £3000 (down from £12,300 in 2022/23), impacting the effectiveness of bed and ISA strategies. This is when investors sell investments outside an ISA without triggering their CGT limit and then move them into an ISA.
Now, with the allowance reduced, triggering CGT gains is more likely, and the costs and charges associated with selling and buying back a smaller position is less favourable due to economies of scale.
How to open a stocks and shares ISA with us
While some limitations remain, the 2024 ISA changes to multiple subscriptions is a welcome update, finally giving investors the opportunity to manage as many new ISA accounts as they want.
The changes to CGT and dividend allowances are a reminder of the significant incentive to maximise your ISA account ahead of a normal stocks and shares account due to the tax benefits.
Our share dealing platform is a leading choice for investors who are confident enough to create an ISA investment portfolio on their own.1
For those who want to invest in a ready-made portfolio that’s actively managed by an industry expert, look at our IG Smart Portfolios. Available as an ISA, these are stocks and shares portfolios built by BlackRock and managed by us.
You can open an IG Smart Portfolio ISA account in just a few minutes.
Learn more about IG Smart Portfolios
Remember, consult a financial advisor for personalised guidance on maximising your ISA’s potential.
Footnotes
1 Best Share Dealing Platform at the YourMoney.com Investment Awards 2024.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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