The start of this month saw the launch of a new type of individual savings account (ISA), the NISA.
According to Lloyd Davies, financial adviser at Aberdeen-based financial advice firm Central Investment, the changes could significantly increase savers’ annual ISA allowances.
In the 2014-15 tax year, individuals can invest £11,880 into an ISA. The whole investment can be in a stocks and shares ISA, or up to 50% can be put into a cash ISA.
The balance of a cash ISA can be transferred to a stocks and shares ISA but not vice-versa.
So what changed on July 1?
All ISAs – existing or not – will become new ISAs (NISAs).
NISAs come with more flexibility – there is an increased limit of £15,000 which can be saved into a cash NISA or stocks and shares NISA.
Some people may prefer a combination of the two which comes with the ability to transfer from cash to stocks and shares.
Savers can hold cash tax-free within their stocks and shares NISA.
Anyone who wishes to, and can afford to save in a tax-efficient environment will welcome an increase in the NISA allowance.
Those who have only ever used the cash element will significantly increase their total annual allowance.
Mr Davies said: “Some savers are unwilling to take any capital risk, therefore, only use their cash ISA allowance.
“Some of them might have been prepared to accept capital risk previously had they known that they could transfer the balance of their plan into secure cash-based savings, while retaining the tax efficiency of their savings. The NISA rules allow this change to take place.”