Those reforms saw the confusing maxi and mini Isas scrapped, and customers allowed to transfer from a previous year's cash Isa into a stocks and shares version. Now, after continued calls for the system to be simplified further, Isas are finally getting another spring clean.
Here, Which? explains what's changing this April and how it will affect your savings, plus other innovations on the cards, including a Great British Isa.
5 ways Isas will change in 2024-25
1. No more single Isa limit
Savers will be able to open and pay into multiple Isas of the same type annually. That will replace current rules that only let you put money into one of each type of Isa every tax year.
The change will enable savers to easily move between different providers and is intended to encourage competition. With cash Isas still enjoying record rates of 5% AER or more, this is good news for savers searching for higher returns.
Find out more:.2. Minimum age raised
The minimum opening age for adult cash Isas will be raised from 16 to 18 years old. This change will bring the product in line with the minimum age requirement for other types of adult Isa.
If you're aged between 16 and 17, you can continue to open and save into a Junior Isa. The downside is that the annual tax-free allowance on a Jisa is significantly less than adult Isas at only £9,000.
Find out more:.3. Partial transfers
From April, you'll be able to transfer part of your account balance from one Isa provider to another, no matter when the money was paid in. Under existing rules, you had to transfer your entire Isa of that type from the current tax year or nothing at all.
The change means that you'll be able to keep some funds with your existing provider and retain that account.
4. No need to reapply
Up until now, savers and investors have been required to effectively reapply for Isas they already hold if the account has been lying dormant for one tax year.
This rule will be scrapped and the Isa will remain open, ready for you to resume use of, if and when you wish.
5. Innovative finance Isa boost
Finally, the range of permitted investments for these Isas has been expanded to include long-term asset funds and open-ended property funds with extended notice periods.
Room for future improvement?
Despite the sweeping changes coming in from April, there are calls for the government to go further and the Chancellor may use the Spring Budget on 6 March to unveil more Isa reforms.
Here are three of the main changes that could be on the cards:
Increase of allowances
The current annual tax-free allowance for an adult Isa is frozen at £20,000 and that hasn't budged since 2017. But there are now calls for the Isa allowance to be raised.
Campaigners say that the main reason it's time to up this limit is the ongoing freeze on another tax-free threshold – the personal savings allowance (PSA). This allows you to earn £1,000 of interest tax-free if you're a basic-rate taxpayer or £500 if you're a higher-rate taxpayer. Additional-rate tax-payers don't benefit from a PSA.
Adding fuel to the fire is a lack of understanding among many savers of how the PSA impacts their money. New research by Shawbrook Bank found that 21% of savers have never heard of it, while 44% admit that they don't understand it.
Making use of Isa allowances to earn tax-free interest is therefore more important than ever.
Find out more:.A new Great British Isa
There has also been buzz around the possible introduction of a new Great British Isa. This would effectively be a stocks and shares Isa for UK-listed companies only, with savers who utilise the product rewarded with an additional £5,000 allowance.
However, Prime Minister Rishi Sunak and Chancellor Jeremy Hunt are reportedly at odds over the idea and, even if it is unveiled in the Spring Budget, it wouldn’t come into force until 2025-26 at the earliest.
Lifetime Isa reform
The government has so far resisted pressure to raise the house price limit on a Lifetime Isa (Lisa) to keep up with house prices. Lisas can be used to buy properties costing up to £450,000, but average house prices in some parts of the country are now far higher than that.
The main selling point of a Lisa is also the generous 25% bonus the government pays on your savings each year, up to a maximum of £1,000. However, if you want to spend the money on anything other than your first property, or you're under the age of 60, you'll be hit with a 25% penalty when you withdraw your cash.
Campaigners are calling on the Chancellor to scrap the fine in the Spring Budget. Hargreaves Lansdown is also asking the government to reform the scheme, but wants the penalty cut to 20% so only the bonus is lost.
Find out more: .source https://www.which.co.uk/news/article/ways-isas-are-changing-in-april-2024-a7Cqc3N7yclx