The 2024 ISA changes: What investors need to know
ISAs are changing again and so are your tax-free allowances for dividends and gains. Here’s what you need to know about April’s changes
Significant changes are coming next month that particularly impact people who invest in shares or save into ISAs.
In the countdown to the new tax year on 6 April, we’ve rounded up the key changes so you can make the most of your allowances, and understand how to get the most from the new rules when they start.
What are the current stocks and shares ISA rules?
Currently you can open and pay into only one stocks and shares ISA during the tax year.
You’re able to invest part, or all, of your yearly allowance – currently £20,000 – into a stocks and shares ISA (also called an investment ISA). Using an ISA means you’re protecting your investments from the taxman and you won’t have to pay UK dividend and capital gains tax (CGT).
If your investments aren’t in an ISA or a pension, you still have a dividend tax-free allowance of £1,000 and a capital gains tax-free allowance of £6,000. You’ll have to pay tax on any dividends or profits over these thresholds.
How will ISAs change next tax year?
One big change coming to ISAs is that, after 6 April 2024, you’ll be able to open and pay into more than one of the same type of ISA each tax year – for example, more than one stocks and shares ISA.
This gives you the flexibility to open multiple stocks and shares ISAs with different providers and make the most of each provider’s strengths.
A less significant change is that you’ll be able to carry out partial ISA transfers. This will let you make the most of your new ability to open and pay into multiple stocks and shares ISAs. For example, you may want to move your investment fund holdings to another platform but keep your individual shares where they are.
Some tax-free allowances will halve
ISAs are also going to become more important than ever because certain tax-free allowances will be halved from 6 April 2024.
You’ll have only a £500 tax-free dividend allowance and a £3,000 capital gains tax-free allowance. Using an ISA is the generally the best to protect yourself today (and in the future) from any potential UK taxes on investments.
Investors seeking to shield their returns from potential tax has also led to a surge in “bed and ISA” requests in the UK. This involves instructing your investing platform to sell your current investments and then repurchase everything within an ISA.
Some platforms only charge you for the repurchase and not the sale, so this can be a cheaper way to move your portfolio into an ISA rather than selling everything and buying all the assets again yourself.
Other changes to stocks and shares ISAs
Along with seeing more account flexibility and falling tax-free allowances, you’ll likely encounter much discussion about the introduction of the “UK ISA”.
The government is currently engaging in a consultation process until June 2024 to get feedback on its plans for a British ISA. The proposal is that investors will get an additional £5,000 ISA allowance to invest in UK shares (on top of the existing £20,000 yearly allowance).
Finder statistics show that the average yearly amount put into a stocks and shares ISA is around £9,000 – far below the £20,000 allowance. So, getting an extra £5,000 to invest in UK companies is likely going to benefit only a small number of ISA subscribers.
However, if you currently max out your ISA allowance each year, an extra £5,000 may be useful to shelter more of your portfolio from UK tax. Although, you’ll be limited to investing in UK businesses with that extra allowance.
About the author
George Sweeney DipFA is a deputy editor at Finder.com, specialising in investing. He has previously written for The Motley Fool UK, Nasdaq, Freetrade, Investing in the Web, MoneyMagpie, and Online Mortgage Advisor. George is a qualified financial adviser and is regularly quoted in the national media about investing and personal finance.
This article originally appeared on finder.com/uk and was syndicated by Mediafeed.org.