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All change for ISAs – new tax-free ways to save
Despite ongoing low interest rates and the recent introduction of the Personal Savings Allowance, ISAs still form a
valuable part of the savings portfolio for many individuals. Here we outline some recent changes to the ISA regime.
Increased flexibility
From 6 April 2016, new measures allow
savers to replace cash they have withdrawn
from their ISA account earlier in a tax year,
without this replacement counting towards
the annual ISA subscription limit. This can
also be done for cash that is held within
stocks and shares ISAs if the provider offers
the facility through a cash trading account.
Under the ISA Regulations, the new
flexibility is available in relation to both
current year and earlier year ISA savings.
However, the ISA provider needs to have
changed the terms and conditions to allow a
‘flexible ISA’.
Help to Buy ISA
First-time buyers can save up to £200 a
month in this tax-free savings account,
which the Government will top up in the
form of a 25% bonus, up to a maximum of
£3,000. Users can also open a Help to Buy
ISA account with a lump sum of £1,000, in
addition to the monthly maximum.
From 1 February 2016, where a saver has
closed their Help to Buy ISA and withdrawn
their savings, but their intended home
purchase does not proceed, they can also
replace their savings in an ISA or Help to
Buy ISA without this impacting on their ISA
subscription limit.
The Innovative Finance ISA
The new Innovative Finance ISA is designed
to encourage peer-to-peer lending. It
can be offered by qualifying peer to peer
lending platforms in accordance with the
ISA Regulations.
Loan repayments, interest and gains from
peer-to-peer loans will be eligible to be
held within an Innovative Finance ISA,
without being subject to tax.
An ISA investor will normally be entitled
to subscribe new money each year to a
maximum of one Innovative Finance ISA,
one cash ISA and one stocks and shares
ISA. The amount of new money paid into
all of the ISAs held by an investor must not
exceed the overall ISA subscription limit for
the year – which for 2016/17 is £15,240,
rising to £20,000 from 2017/18.
Returns on Innovative Finance ISAs have
the potential to be significantly greater
than on cash ISAs, but they will carry a
greater degree of risk.
Lifetime ISA
From 6 April 2017 any adult under 40
will be able to open a Lifetime ISA.
They can save up to £4,000 each year
and will receive a 25% bonus from the
Government for every pound they put in,
up to the age of 50.
Funds can be used to save for a first home
or for retirement. Features include:
both the savings and Government bonus
can be used towards a deposit on a first
home, worth up to £450,000
accounts are limited to one per person
rather than one per home – so two
first-time buyers can both receive a
bonus when buying together
during the 2017/18 tax year, those that
have a Help to Buy ISA can transfer the
savings into a Lifetime ISA, or continue
saving into both, but will only be able to
use the bonus from one to buy a house
after their 60th birthday individuals can
withdraw the savings, tax-free
savers can withdraw money at any
time before their 60th birthday for any
purpose, but the Government bonus,
together with any interest or growth
thereon, will be lost. A 5% charge will
also be payable.
This article is for general information only and
professional advice should be taken before
making any investment decision.
The rules governing holiday and pay
With the holiday season upon us,
many employees will be looking
to take some well-earned time off.
However, for employers the rules
governing holiday and pay can be
something of a headache. Here we
outline some of the basic principles.
What are the basic holiday
pay guidelines?
Most workers have the right to a
minimum amount of statutory holiday
and pay, including casual workers and
those who work part-time. However,
self-employed workers are not entitled to
statutory paid holiday.
At least 5.6 weeks of annual paid holiday
should be provided to the majority of
workers. However, employment contracts
may allow employees to take additional
holiday, on top of the statutory minimum.
Any amounts of contractual holiday are
decided by the employer. Employers
can also decide whether to include
bank holidays as part of an employee’s
statutory holiday entitlement.
The amount of statutory holiday that
employees can take is generally calculated
by multiplying 5.6 by the number of days
they work per week. Those who work a
five-day week, for example, are entitled
to 28 days’ paid holiday per year.
How is holiday pay
calculated?
Pay rates for any holiday that an
employee takes are generally the same as
their normal rate of pay. However, some
employees could be entitled to a higher
rate of holiday pay.
Employers calculate employees’ holiday
pay based on their working hours. For
workers with conventional working hours
whose pay does not alter with the amount
of work undertaken, this will be the
same as a normal week’s remuneration.
For workers whose pay levels vary, the
holiday pay will be the same as a normal
week’s pay, but this is calculated by
working out the average pay over the
last 12 weeks in which they were paid.
Employers must also take commission into
account when calculating holiday pay for
the four weeks of statutory annual leave
required under European law.
Recent developments
Following a legal ruling in the case
of Bear Scotland Ltd v Fulton, from
1 July 2015 claims for backdated
holiday pay are limited to a maximum
of two years. The Employment Appeal
Tribunal also ruled that non-guaranteed,
compulsory overtime should be taken into
account when calculating an employee’s
holiday pay. This is subject to a 20-day
restriction required by the Working Time
Directive, which differs from the 28 days
usually allowed under UK law.
This article is for general information only
and you are advised to seek professional
assistance if you are unsure of your
legal obligations.