Page 42 - Phonebox Magazine January 2007

Finance Matters
brought to you by Advison Independent Financial Advisers
Government set to relax rules on Individual Savings Accounts
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42 Phonebox Magazine
Earlier this month, Gordon Brown presented his latest, and most probably last, Pre Budget Report. Traditionally this has been a rather dour affair providing an update on economic figures and how changes in these affect the previous Budget and are likely to shape the next one.
However, Gordon Brown has increasingly turned these into more of a mini Budget and consequently they are becoming of greater interest. As with the full Budget in March, only a fraction of the measures being introduced are actually covered in the speech and often the ‘nitty gritty’ is found in the subsequent press releases from the various ministerial departments.
From the perspective of Financial Planning, there were two main areas that were covered. The first was pensions, with a number of changes being highlighted to fine tune the pensions simplification legislation that came into force in April (to be covered here in detail next month).
Changes to the Individual Savings Account (ISA) rules to try and simplify what have always been regarded as confusing and over complicated legislation, have also been put forward and these proposals may come into effect as soon as April next year.
Perhaps the most fundamental of these changes is the scrapping of Mini and Maxi ISAs. In future all ISAs will be the same but up to £3,000 can go into a cash only element. The remainder of the £7,000 annual allowance can be made up from the Stocks and Shares element. As an example, if you place £500 into the cash element for the year, a further
£6,500 can be placed in the Stocks and Shares element. This can either be with the same provider or a separate one.
ISAs were introduced by the Labour government to replace Personal Equity Plans (PEPs) which were introduced by the Conservatives in 1986. They have very similar rules and these are now going to be aligned so that they are identical. It is then proposed that in the future, the two investment types will merge so that all of them are stocks and shares ISAs (PEPs will then cease to exist).
However, possibly the most interesting change is the introduction of transfers between Cash ISAs, from previous years to Stocks and Shares ISAs. In the words of the Treasury Minister Ed Balls, this is being proposed “...to further promote share ownership by encouraging savers to diversify their assets and benefit from the potentially higher returns offered by stocks and shares over the long run.”
A couple who have used each year’s Cash ISA allowance since they were introduced will now have around £50,000 saved and as such the proposed changes could provide a tremendous tax efficient opportunity for those happy to take a level of risk with some of their savings.
If you have money sitting in Cash ISAs, then why not contact us. Kevin and Andrew can undertake a full review of your situation to ensure you are making the most of your hard earned savings and maximising tax efficiency.