ISAs are celebrating their 25th birthday, and to mark the occasion the government has made several small changes.
The reforms should simplify the ISA landscape, ironing out a few inconsistencies, and bring more flexibility and choice for savers and investors.
There is likely to be another big change in the future, with the arrival of the British ISA, as announced in Jeremy Hunt’s Spring Budget. This additional £5,000 ISA allowance is for investing in UK equities; it is not yet clear when it will launch. However, there are five changes to the ISA rules which kicked in on 6 April, at the start of the 2024-25 tax year.
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1. Savers can open and pay into multiple ISAs of the same type
From 6 April, customers can open and pay into multiple ISAs of the same type each tax year.
That means you can pay into two or three different cash ISAs, for example, or open several stocks and shares ISAs. The changes replace the current rules that only let you put money into one of each type of ISA every year. It is intended to encourage competition and make it easier for savers to move between different providers.
Richard Parkin, head of retirement at BNY Mellon Investment Management, tells MoneyWeek that the new rule will “increase flexibility”, although he doubted it would be that useful for investors: “The reality is that most stocks and shares ISAs available on popular platforms like Fidelity, AJ Bell and Hargreaves Lansdown offer access to the same wide range of funds. It’s not therefore clear that allowing you to use multiple ISAs helps that much.”
However, he added that it would be more useful for cash ISAs where different savings providers offer different rates. For instance, a saver may open a one-year fixed-rate cash ISA and pay £5,000 into it. A few months later, they may spot another cash ISA paying a higher interest rate. Under the old rules, they would not have been able to open the second cash ISA, but under the new ones, they will.
2. Minimum age for cash ISAs raised
The minimum age to open an adult cash ISA has been raised from 16 to 18 years old. This brings the product into line with the minimum age requirement for other types of adult ISA.
Sarah Coles, head of finance at the wealth manager Hargreaves Lansdown, says the change will “close the loophole that allows 16 and 17-year-olds to have a junior ISA and a cash ISA allowance in the same tax year”.
If you're aged 16 or 17, you can continue to open and save into a junior ISA. The downside is that the annual tax-free allowance on a junior ISA is a lot lower, at £9,000, compared to the adult allowance of £20,000.
3. Partial transfers allowed
From 6 April, ISA savers can transfer part of their balance from one ISA provider to another, regardless of when the money was paid in.
Under the old rules, customers have to transfer their entire ISA of that type from the current tax year or nothing at all. The change means you can keep some money with your existing provider and retain that ISA.
4. Innovative Finance ISA boost
Innovative Finance ISAs were launched to help provide a boost to the peer-to-peer lending industry. But they remain a niche product, accounting for only 0.13% of ISAs contributed to, according to HMRC.
The range of investments is now expanded, with long-term asset funds and open-ended property funds with extended notice periods allowed inside Innovative Finance ISAs, which could potentially increase their popularity.
5. No need to reapply for your ISA
A little-known ISA rule means that savers and investors are required to effectively reapply for ISAs they already hold if the account has been dormant for one tax year. The government has scrapped this rule, meaning the ISA will remain open, ready for customers to use again, as and when they wish.
Are ISA providers ready for the shake-up?
The new ISA rules were only announced in 2023’s Autumn Statement. It means banks, building societies and investment providers had less than six months to implement the changes.
It is not clear whether ISA providers will have been able to update their systems to take account of the reforms. And with changes like the flexible ISA – which allows savers to withdraw money and pay it back in without affecting their annual allowance – it is up to providers to offer the new functionality.
For example, not all ISAs are flexible: providers that offer flexible cash ISAs include Barclays, Lloyds, Nationwide, Newcastle Building Society, TSB and Virgin Money. Those that don’t include First Direct, HSBC, NatWest and NS&I.
The new rules are not mandatory. For example, some banks and building societies may continue to not let you open more than one cash ISA with them in the same tax year.
Skipton Building Society is the only provider to have confirmed the new ISA feature. Alex Sitaras, head of savings products at Skipton Building Society said: "From 6 April, our customers can split their current year’s ISA allowance across multiple different Cash ISA products." So, it will be up to savers and investors to ask providers whether they are offering the new functionality before they open an account with them.
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