The past year has been a much bigger and better one for individual savings accounts (Isas) than anybody expected this time last year.
Back then, there was still speculation that the chancellor might announce tighter limits on Isas, such as a cap on how much you could accumulate within an account tax-free. In the end, the 2014 Budget saw sweeping changes to the rules but they went in completely the opposite direction.
Contribution limits were hugely increased, rising from £11,520 in the 2013/2014 tax year to £15,000 in 2014/2015. The old restriction that limited cash Isa contributions to just half the total allowance was removed: now you can split your allowance between a cash Isa and a stocks and shares Isa in whatever way you want.
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Transfer rules were also loosened. Previously, you could transfer from a cash Isa to a stocks and shares Isa, but not the other way. Now you can transfer back and forth as much as you like, making it far easier to adapt your accounts to changing circumstances.
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The rules around holding cash in a stocks and shares Isa under which cash was only supposed to be held pending reinvestment have also gone. So, logically enough, has the 20% tax charge on holding cash interest in these Isas. Restrictions on holding short-term bonds which were intended to stop investors getting around these limits by holding cash-like investments have also been abolished.
In the autumn, the chancellor followed this up with another change allowing Isas to be passed to a husband or wife after the holder's death. While this has no impact on inheritance tax on the capital (since transfers between spouses are already inheritance tax-free), it allows them to inherit the entire account and continue benefiting from a tax wrapper.
All this follows tweaks in 2013 that allowed Alternative Investment Market (Aim) shares to be held in an Isa for the first time, a move that made smaller companies one of the most tax-friendly investments around. Aim trades carry no stamp duty, many Aim shares are exempt from inheritance tax and now they benefit fully from the income and capital gains tax shelter of an Isa as well.
In recent months, Isas have been somewhat overshadowed by the forthcoming changes to pensions. These are intended to give all of us more choice in how we take our pension benefits at retirement. But there's no doubt that this series of changes has made Isas even more adaptable than before, suitable for everything from short-term saving to retirement planning. They remain a key tool for almost every investor.
So are there any remaining restrictions that should be swept away? There's at least one obvious one: the ban on holding foreign currencies in an Isa. This rule has never made sense and it's especially out of place now that long-term sterling cash holdings in a stocks and shares Isa are permitted.
Forcing capital gains and dividends to be converted back into sterling every time is a huge inconvenience for those of us who like to invest internationally, since it means that brokers' high currency conversion charges eat into the tax benefits of the account. Self-invested personal pensions have always been allowed to hold foreign currency balances. Similar flexibility for Isas is long overdue.
