In a surprise announcement at the end of his 55-minute speech, the Chancellor George Osborne said cash and shares ISAs were to be merged into a single new “super ISA” with an annual tax-free savings limit of £15,000 from 1 July this year.
The limit for Junior ISAs will be raised to £4,000 a year, from £3,720.
Ever since the ISA was launched in 1999 in New Labour’s first term of office, the investment industry has criticised the tax-exempt savings wrapper as ill-conceived, unnecessarily complicated, restrictive and lacking flexibility.
The Chancellor said half of all UK adults have an ISA and the new ISA – tentatively knows as a NISA – is a “radical reform” of the ISA system.
It will now be a simpler product with equal limits for cash and stocks and shares. This will mean that, for the first time ever, savers will be able to transfer previous years’ funds from stocks and shares ISAs into cash ISAs.
From now on, savers will have complete flexibility over how they choose to save and invest, within the overall limit.
The annual investment limit for the NISA will be £15,000 a year, almost three times the current limit of £5,760 a year for saving in cash ISAs, and will benefit more than five million people who currently reach their cash ISA limit, three-quarters of whom are basic rate taxpayers.
Tony Stenning, head of UK retail at BlackRock, said: “It is pleasing to see the government continuing to support tax efficient savings vehicles by simplifying ISAs and increasing the overall ISA limit to £15,000 in today’s budget.
“Our own Investor Pulse research shows that 40% of Britons save or invest in ISAs, with the products used by many as portable savings pots to supplement their pensions.
“ISAs are a simple, accessible and tax efficient savings vehicle. Their continued success shows Britons are inclined to save more if they have greater certainty around the taxable benefits within well designed products that are both accessible and simple.”