Get set for the NISA way to save: why the ISA’s replacement is better for savers (even if you’re not fabulously wealthy)

Tuesday, July 01, 2014

On 1 July, ISAs were replaced by NISAs. While they have been criticised by some financial commentators for being aimed at the better off, they still offer many advantages for average earners - here are three good reasons to put your money into one 

1. You can keep more money safe from the taxman

Now, you can put more money into tax-free savings every year because the NISA allowance is higher - it's increasing from £11,880 to £15,000. Even if you're not in a position to save that much, you might be able to take advantage of this.

This is good news because…

  • If you have existing savings and investments that aren't already in a tax-efficient savings plan - savings accounts, shares from employee share schemes or any taxed investments, for example - you could move them into a NISA so you stop paying tax on them.
  • It means that if you do come into any money you can save another £3,120 tax-free - even if you've already used up your old ISA allowance this year.

2. You can adapt them to fit your circumstances

The rules have been simplified so you can move your money between cash savings and stocks & shares as your situation changes, without losing any of the tax breaks.

This is good news because…

  • If you use a cash NISA to put money away in a rainy day fund (it's a good idea to have one of these!), and it grows large enough to cover most emergencies, you could then decide to switch some of it to a stocks & shares NISA to save for longer term goals. 
  • It works the other way round, too: you can use a stocks & shares NISA to save for a long-term goal with the reassuring knowledge that when you need access to your money, you can transfer it to a cash NISA.

3. They're easier to use

The rules have been simplified so that NISAs allow you to save the total tax-free allowance into a cash and / or stocks & shares NISA if you want to. This makes saving more straightforward.

This is good news because…

  • Whereas ISAs have restrictions on the amount you can save in a cash ISA, it's up to you how you split the annual tax-free allowance between cash and stocks & shares NISAs.

Need to know

  • On 1 July all your existing ISAs will automatically become NISAs - you don't have to change anything.
  • Interest on a NISA is paid tax free, there's no further income tax for you to pay on any dividends on stocks and shares, and you won't pay capital gains tax on any profits.
  • If you do decide to switch between cash and stocks & shares NISAs, remember not to withdraw the money. If you do, the money you withdraw will lose its NISA status and the tax breaks associated with it. Instead, contact the NISA provider  who can arrange a transfer  on your behalf.
  • Tax rules may change in the future and depend on individual circumstances.
  • With a stocks & shares investment you may not get back all you have paid in.

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