🔔 ISA simplification or additional complication?

It was a key rabbit out of the hat at the Autumn Statement in November 2023, when the Chancellor announced changes to the ISA rules that were supposed to make ISAs simpler to open and manage from 6th April 2024. But what many people may not realise is that these changes do not have to be adopted by the ISA providers. So if anything, savers are more confused than ever about what they can and can’t do!

In 2016 a similar situation occurred when the ‘flexible ISA’ and ‘portfolio ISA’ rules were introduced, and once again there was no obligation for the banks and building societies to implement those rules, and many didn’t.

What are the key new rules from 6th April 2024?

1.      Allowing multiple ISA subscriptions: 

People should now be allowed to open and pay into multiple ISAs of the same type in a single tax year. Previously people could only pay into one of each type of ISA every tax year, so for example one cash ISA and one stocks and shares ISA – unless your ISA provider had previously adopted the ‘portfolio ISA’ rule, which has been in existence for a few years now, allowing savers to open more than one cash ISA with the same provider in the same tax year. This has a number of names – we called it the ‘portfolio ISA’ rule - but only a small number of providers adopted it, such as Paragon, Aldermore, Charter Savings Bank, Nationwide and Ford Money to name a few.

So, this new rule is in addition to the ‘portfolio ISA’ rule and should not be confused with it.

With the new rules, savers assume that they can open more than one ISA with either more than one provider or with the same provider. But our research has shown that whilst many providers (not all though) will allow you to open another cash ISA with them if you have already opened and funded an ISA with someone else in the current tax year, this doesn’t mean they have adopted the portfolio ISA rule – so you may not be able to open two ISAs with them! Confusing right?

This new rule is beneficial as it means that if you didn’t deposit all of your ISA allowance initially, you can open another ISA at the best rates available at a later date if you want to and don’t simply want to add to the one you’ve already opened. Plus, if you have opened a fixed rate ISA with less than the full allowance but had further funds later on that tax year, you are unlikely to be able to add to the ISA you have, as it will have closed to any new subscriptions. So, being able to open another ISA with someone else is great news.

2.      Partial transfers allowed: 

One of the other new and optional changes is that in theory ISA customers should be allowed to make a partial transfer of the current tax year ISA, rather than being forced to transfer the whole amount of your current tax year ISA. Previously you could only make a partial transfer of old ISAs; you’d have to transfer the current tax year’s ISA entirely.

But once again, so far it looks like many ISA providers are yet to allow this change – you may still need to transfer the whole of the current tax year’s ISA either because your current provider will not allow you to make a partial transfer, or the new ISA provider will not accept a partial transfer!

Whilst it’s unlikely that this new rule to allow partial transfers of the current ISA allowance will have any obvious benefit, the fact that it brings the ISA transfer rules into line is probably the main advantage. Overall, you should now simply be able to transfer all or some of your ISAs to other providers, but, it might not be as simple as that if your ISA providers haven’t adopted the new rules!

3.      Harmonise ISAs to those over 18 years of age: 

The only rule that has been adopted by all is the increase to the minimum opening age for adult cash ISAs. You now have to be 18 to open an adult cash ISA, so this is not good news for those aged 16 and 17 who previously could have funded a Junior ISA and an adult cash ISA.

The reason this has been adopted by all is that it is a change in regulation rather than optional.

So, whilst in theory the new rules should make opening an ISA simpler than ever before, in reality these new changes have added an extra complication for savers.  The bottom line is that whilst things should be more flexible now, inevitably this isn’t the case, so you need to ask your existing and potential ISA providers about which of the rules they have adopted or are looking to adopt.