What’s Different About ISAs in 2017/2018

Now that the 2016/2017 tax year is over, it’s important to think carefully about what the changes made in the last budget are likely to mean for you and your savings.

As with most tax years, there are some changes that have been made towards savings accounts that will either affect people considerably or barely at all. The introduction of the Lifetime ISA, for example, will only affect first-time buyers or those who have not been offered or saved for a pension, whereas the annual increase is quite a big deal for anyone who holds an ISA account. Let’s take a look at these changes in more detail.

Lifetime ISAs (LISA)

Firstly, this is one of the flagships of the budget, and an important step in understanding and counteracting the difficulties that young people face. As previously mentioned, LISAs are aimed at first-time buyers and others who may not have thought about pension savings who are aged between 18 and 39. It allows them to save up to £4000 per year, with a 25% government bonus at the end.

This ISA is strictly for houses and pensions; if you withdraw your savings for anything else, then you will be charged a penalty of 25%, which will remove the bonus altogether. Said bonus comes on top of any interest or growth, though few providers are offering them as of yet, which means the initiative currently looks set to become something of a flop.

Annual Allowance Increases

The other biggest change to ISAs, is that the allowance has now risen from £15,240 to £20,000 for the tax year, allowing savers to invest almost 25% more cash. However, even ISA interest rates are struggling and this extra allowance will only help those who already have a significant amount of income they can save each year. For those who are so inclined, this can be split between four separate ISA types (only one of each type) from different providers.

It is also worth remembering a few things about the allowance increase. Firstly, as always, an allowance is not carried over into the next tax year, so use it or lose it, so to speak. Secondly, if you do choose to split your allowance across ISAs, be sure that you’re aware of their individual small print – some have limitations placed on the amount per year that may not fit in with your plans. Lastly, the allowance is personal to you – both a husband and wife or both constituents of a civil partnership are entitled to the £20,000 allowance.

Charlie Howells

After finishing his business studies degree at Bath, Charlie has been involved with a number of startups and finance companies. He regularly writes about personal finance.