Whether you want to call them by their proper name New Individual Savings Accounts (NISAs) or just Individual Savings Accounts (ISAs), there’s no doubt that these tax efficient investments have gone through many changes since they were introduced in April 1999.

According to the gov.uk ISA Statistics Release August 2015, around 13 million people opened adult NISAs in the tax year 2014/15 subscribing around £79 billion, an increase of around £20 billion on 2013/14. At the end of 2014/15 the market value of Adult NISA holdings stood at £483 billion, a 3% increase compared to the value at the end of 2013/14. These holdings are currently split almost equally between cash NISAs and stocks & shares NISAs.

Saving Flexibility

You can invest in cash NISAs, stocks and shares NISAs and there are also NISAs for children and those to help you buy a new home. They are exempt from income tax and there is no Capital Gains Tax on NISAs; there is no tax payable when you withdraw them from a scheme either! What’s not to love?

Every year you get a NISA tax free allowance, which is currently £15,240 for 2015/16 (£4080 for a Junior NISA). Your full allowance can be divided between a cash NISA and a stocks and shares NISA. What’s more allowances have been increased every year in the March budget announcement since 2011 (usually in line with inflation).

From 1st December 2015, those thinking about using a “Help to Buy ISA” can put away up to £200 per month and the government will also contribute 25% up to a maximum of £3000. In the first month, you can actually put away up to £1200, which adds an extra £1000 to the full years’ allowance. This is, in my opinion a great way for you, your children or grandchildren to save a deposit for their new home tax free.

Interest and Transfers

The interest rates available on cash NISAs vary depending on what type of account you have and how quickly you want to access your money. Easy access accounts which allow you to access your money after a year, usually pay less interest, as opposed to those that lock you in for over a year. So if you are considering taking out an NISA you need to consider what you want to do with that money and when you will need it before selecting the right account for your needs.

The rules are that you are allowed to open one cash NISA per year. However, if you already have a NISA and you have seen a rate with another provider that is more favourable, it is possible to transfer your previous savings to a different NISA provider (as long as they accept transfers), as many times as you like and you can still open a new NISA account with your renewed allowance in that same year if you haven’t already. Previous savings aren’t governed by the “one cash NISA per person per year” rule, and as long as you don’t contribute to both it’s perfectly acceptable to have another one.

Money that is held in a cash NISA can be transferred into another cash account or into a stocks & shares NISA and; assets held in a stocks & shares NISA can also be switched back into cash, although this may take longer than transferring cash NISAs, so it’s important to speak to your provider.

Use it or lose it

Unlike some other tax allowances, your annual NISA allowance cannot be transferred into a new tax year. So, if for whatever reason you only use half of your allowance, you will lose the other half if it is left unused for the remainder of the tax year. For this reason and to allow you to get the most tax efficient benefit from your NISA, we would encourage you to use your full allowance every year.

There’s no doubt that the saving efficiency you get is a valuable asset. If you would like to find out more about NISAs or have a review of your current NISA savings we will be more than happy to help you.

The purpose of this article is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice. Tax law and HMRC practice can change. The value of stocks and shares NISAs can fall and rise in line with investment performance.

Angus Kirk

Financial Planner at Bridge Investments
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