It will be Nisa to get a tax-free savings habit soon, but now...


To cheers from savers, Chancellor George Osborne simplified and extended the tax-free savings system in his Budget on Wednesday.

He announced that cash and share individual savings accounts were to be merged into a single New Isa (Nisa), with an annual tax-free savings limit of £15,000, from 1 July. Meanwhile, the limit for junior Isas will be lifted to £4,000.

On top of that, the type of investments that can be sheltered from tax in an Isa will be widened to include the likes of peer-to-peer lending.

With returns on the latter generally much higher than on standard bank or building society savings accounts, that's good news. However, it's tempered by the fact that peer-to-peer is not protected by the Financial Services Compensation Scheme, which may raise alarm bells with some.

Apart from the raising of the Isa limit, that you'll be able to switch your holdings between cash and equities and back again will make the new-look tax-free savings schemes much more attractive. At present you can only transfer holdings from cash to investment, but the ability to transfer back revolutionises the flexibility of the schemes.

However, you won't be able to use your Nisa until July. Before then you still have a few days – until the end of the tax year on 5 April – to make the most of the current year's Isa allowance, and excitement over the new rules shouldn't cause you to miss out on what is already a valuable tax concession.

You can stash £11,520 in an Isa at the moment, and only half of it in a cash Isa. But it's well worth scouring the market for the best deals.

Yesterday Skipton Building Society boasted of becoming the first UK financial institution to offer "Nisa ready" savings. It said its customers would be able to make use of their full new Isa allowance of £15,000 in July, even if they lock into a fixed-rate Isa beforehand.

But others will surely follow in the next few days and any move you make now to use up your 2013-14 Isa allowance – such as taking a fixed-rate deal – is unlikely to affect your ability to make the most of the new rules in July.

So, for instance, if you take out a new Isa on 6 April, as part of your 2014-15 allowance, it should follow that you'll be able to top up to the new £15,000 level come July.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown


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