It has now been confirmed that some of the previously expected changes to PEPs and ISAs will take effect from 6 April 2008.
Changes to PEPs
New contributions into PEPs were stopped when the Labour Government introduced ISAs in 1999. Funds still in PEPs retain their tax privileges and it is still possible to move money from one PEP manager to another without losing the tax sheltered benefits.
There are some minor differences between PEPs and ISAs in terms of the investments that may be held within each wrapper and the tax treatment of interest. All PEPs will automatically become stocks and shares ISAs from April and, as such, PEPs will cease to exist.
Changes to ISAs
There are currently two forms of ISA:
- You can put up to £7,000 in a Maxi ISA with one provider, either exclusively in ’stocks and shares’ (which also includes fixed interest securities and commercial property funds) or, if the provider offers a cash option, up to £3,000 can be held in cash within the Maxi ISA.
- Alternatively you can take out two Mini ISAs – one a Cash ISA for up to £3,000 and another ‘Stocks and Shares’ ISA for up to £4,000. However, investing just £1 in a Mini Cash ISA will still mean that the maximum that can be invested in a ’stocks and shares’ ISA does not change from £4,000, so reducing your overall allowance.
From April, the labels of Mini and Maxi are being removed and you will simply have a cash ISA or a stocks and shares ISA, regardless of the amount invested. The total annual allowance that you can invest in an ISA is being increased to a miserly £7,200 per person, per tax year.
Under the new limits up to £3,600 can be invested in a cash ISA, and the remainder of your £7,200 allowance can be invested in a stocks and shares ISA either with the same, or an alternative provider. You will still only be able to invest in one type of ISA in each tax year, so you can’t invest in two separate stocks and shares, or cash,
ISAs during one tax year.
Currently you are unable to transfer funds between cash and stocks and shares ISAs, but from April you will be able to transfer funds from a cash ISA into a stocks and shares ISA. However, you will still not be able to transfer funds from a stocks and shares ISA to a cash ISA.
Simple, yes?
What remains, however, is that the allowance under ISAs still remains lower than that under the previous PEPs and TESSAs which averaged £10,800 each tax year. So much for this Government encouraging a savings culture!
