Chancellor George Osborne has announced two significant changes to the ISA regulations as part of what he described as the government’s plans for a ‘savings revolution’.
In today’s Budget Osborne announced what he called ‘a radically more flexible’ ISA regime. He said that under existing rules, anyone who makes a withdrawal of money inside a tax-free ISA loses the tax free advantage and is not able to pay that money back in.
Osborne said from the autumn it would be possible to have a ‘fully flexible’ ISA whereby if an individual took money out and put it back in later in the year they would retain the tax free status. He also said the government intended to announce a widening of the range of investments eligible to be put in an ISA.
In addition, Osborne said that the government intended to combine two of its innovations to launch the 'Help to Buy' ISA for first time buyers.
Anyone saving for a house deposit via an ISA will see the government add £50 to every £200 they save, meaning that a savings pot of £12,000 contributed by the individual from their earnings would be topped up by £3,000 from government.
Osborne said the move was intended to help first time buyers get on the housing ladder in an era of low interest rates for savings and high deposit demands from lenders.
Bill Dodwell, head of tax policy at Deloitte, said: ‘This chancellor has made very substantial reforms to the taxation of savings over this parliament.
‘Measures in this Budget will help ISA savers by allowing them to reinvest money withdrawn in the same tax year, due to arrive in autumn 2015.
‘From April 2016, there will be a new £1,000 personal savings allowance (£500 for higher rate taxpayers – zero for additional rate taxpayers) which will mean that 95% of taxpayers will not pay tax on their savings income.
‘The standard deduction of 20% tax by banks and building societies will cease from April 2016, so that taxpayers won’t need to claim refunds.’
