It’s looking NISA for savers

The principle of saving or investing for your future is one that any responsible government would wish to promote. Yet with rock bottom interest rates, global market uncertainty and restrictive pension rules dominating the personal finances landscape over recent years, UK savers have hardly been filled with compelling reasons to do so.

However, in addition to the pension revolution, the UK Government has acted to improve the potential returns you can receive through saving or investing by revamping the rules around Individual Savings Accounts (ISAs).

Rebranded as New ISAs – or NISAs – last July the Government increased your annual allowance by more than £3,000, to £15,000. It also removed the restriction that only half of your allowance could be used for Cash ISAs, providing you with the freedom to utilise your full entitlement into Cash, Stocks & Shares, or a mixture of the two.

Rebranded as New ISAs – or NISAs – last July the Government increased your annual allowance by more than £3,000, to £15,000.

This is a considerable boost for savers and investors, particularly as your 2015/16 NISA allowance has been increased further to £15,240. The main advantage of NISAs is that the returns your money generates are not taxed, in contrast to regular savings and investments. The more often you use your annual allowances, the more tangible this benefit will become. After all, no one likes paying more tax than they strictly need to.

A further change took effect this April, as taxation rules around how married couples inherit a spouse’s NISA allowance were scrapped. Previously, the NISA tax perks would die with the investor, meaning the holdings their partner inherited would immediately start to attract income and capital gains tax.

Now, married couples will be allowed to keep their partner’s tax benefits when transferring their NISA holdings, via a one-off additional NISA allowance. By the Government’s own forecasts, this move will benefit over 150,000 married couples every year.

These changes mean that the benefits of NISAs have become even more compelling. Every UK adult receives a new allowance each tax year (staring April 6), although you must use it by April 5 the following year, as it cannot be carried over.

Cash NISAs are typically offered by banks and building societies and operated like a regular savings account. You need to be aware that interest rates available via Cash NISAs are not as high as they used to be, partly due to the Bank of England base rate remaining at the historic low of 0.5%.

Alternatively, you can invest into a Stocks & Shares NISA. Doing so would see your money subjected to a greater level of risk, although typically this is where you might find a more attractive level of return in the long-term.

It all depends on the timeframe of when you require your capital, and your appetite to risk and reward. Stocks & Shares NISAs are only suitable if you are prepared to invest for a minimum of five years. If you require your money sooner or would prefer the flexibility to access your money in an emergency, then cash NISAs remain a better, albeit less rewarding, option.