Giving ISA Opportunities A Boost

The Chancellor's Pre-Budget Report in November 2006 announced a range of changes aimed at simplifying the existing ISA and PEP rules. The changes are effective from 6 April 2008 and will require professional financial advice as savers seek long-term solutions for their ISA savings.

Simplifying ISA Structures

The ISA structure from 6 April 2008 has been simplified, with the Maxi and Mini ISA distinctions ceasing to exist. The only differentiation between ISA types will be that of cash and stocks and shares.

A further simplification also means that PEPS will now be classed as a stocks and shares ISA. At the same time a welcome increase in the ISA annual allowance will come into force, with the maximum contribution increasing to £7,200 - not forgetting that transfers into stocks and shares ISAs, including those from cash ISAs, do not count towards the annual allowance.

The new rules mean that investors can make contributions of £7,200 per annum into ISAs, of which up to £3,600 can be held in cash, the balance (or the full amount) being invested into stocks and shares - providing added flexibility to investors. For example, currently if a you save £1,000 into a cash ISA the maximum you can subscribe to a stocks and shares Mini ISA is £4,000. Under the new rules, as well as being able to invest slightly more overall, investing £1,000 into cash could also allow for an investment of  up to £6,200 into stocks and shares.

Cash Transfer Opportunities

Probably the most significant change to the ISA rules is the ability to transfer existing cash ISAs into stocks and shares ISAs. Where appropriate, this presents a clear opportunity for all.

The most recent figures published by the Bank of England show that there is currently in excess of £137 billion held within Bank or Building Society cash ISAs. Clients who have fully utilised their cash ISA and previous TESSA allowances could have over £50,000 currently held inside one or more cash ISAs.

From 6 April 2008 transfers from cash ISAs into stocks and shares ISA products can commence. The transfer from cash to stocks and shares is a one-way street - it will not be possible to make the opposite transaction, or transfer them back to cash once the change has been made.

Of course, there are clear differences between holding money within a cash ISA and a stocks and shares ISA, most notably the ability for the value to drop, as well as rise. However, over the long-term there is a strong case for equity investment via an ISA.

Phased Investment

For those wanting to transfer from cash into stocks and shares, deciding the right time to transfer will be a key consideration.

Butcher & Moody provide the ability to phase investments from cash into the chosen funds over a period of up to 12 months. This can help to ease concerns over the timing of the investment - especially in times of market volatility such as those we have seen recently.

Transferring assets from cash ISAs should only be done with careful consideration of cps needs. Of course, it wouldn't be appropriate to transfer lock, stock and barrel into a stocks and shares ISA if the cash ISA represented a client's only cash savings. However, for those with substantial cash ISA deposits looking for a way to boost their stocks and shares ISA holdings without affecting their annual subscription limits, this change in regulation presents an excellent opportunity.