I have read some press reports about the Government getting rid of cash ISAs. I have an old one of these which I took out a few years ago, but I would like to take out a new one with a fixed interest rate. I want to do this before the end of the tax year in case something happens.

I also have an investment ISA that I have been paying about £3,000 into for the last five years.

Am I able to take out a new cash ISA?

Liz

Rachel Vahey, AJ Bell Head of Public Policy, says:

In the run up to the Budget last Autumn, there were various press reports about the future for the pension tax rules, including how much tax-free cash someone would be able to take. These reports led some people acting hastily, for example increasing their pension contribution or taking their tax-free cash.

The tax advantages we enjoy on pensions – and ISAs – are important and help us to save for our later lives. So, it’s only right we want to make the most of them, especially if we think there is a danger someone is going to take them away from us.

APPROACH ANY DECISION WITH CARE

But the decision about making a change to your long-term investments – whether that’s changing the investment, putting more money in, or taking money out – should always be approached with care. We all need to think through the consequences of our actions, and make sure we are acting to achieve the best solution for our personal circumstances, rather than being spurred on by rumour.

This should be borne in mind when reading the latest batch of rumours on the future of cash ISAs. At the moment, we don’t know what the Government intends to do. Any decisions to open new cash ISAs or pay more money into them should be based on whether this is the right decision for you.

ISAs are meant to be one of the simplest and easiest ways for people to save for their future. And in many ways they are. But the rules around which types of ISAs investors can pay into and how much they can pay are surprisingly complicated.

Let’s start with the basics. There are four different types of ISA for adults:

● Cash ISA

● Stocks and shares ISA

● Lifetime ISA; and

● Innovative finance ISA.

Generally, everyone over the age of 18 can take out an ISA as long as they are resident in the UK. Those aged 16 or 17 can also apply for a cash ISA (but not a stocks and shares ISA). However, that lower age will be removed over the next few years, as the minimum age for an adult cash ISA is about to go up to 18 from April.

Those who are younger than 18 can have a Junior ISA – either a cash type or a stocks and shares type or one of each. But they can only have one of each type at a time. If the youngster already had a cash ISA and the registered contact for the Junior ISA (usually the parent or guardian) wanted to take out a new cash ISA with a different provider so the child would have two cash ISAs, this wouldn’t be allowed. They would have to transfer the first ISA to the new provider instead.

LIFETIME ISA COUNTS TOWARDS THE LIMIT

People over the age of 18 can also take out a lifetime ISA before their 40th birthday. Previously, although everyone could have had two or more cash adult ISAs or two or more stocks and shares adult ISAs, the golden rule is investors can only pay into one ISA type each tax year. However, from last April investors are allowed to pay into two or more cash ISAs in the same tax year, and the same for two or more stocks and shares ISAs.

Finally, a quick word on how much people can pay in. They can pay in up to £20,000 a year into an adult ISA. This could be split across a cash ISA and a stocks and shares ISA.

A younger investor can also pay up to £4,000 into their lifetime ISA. But this must be counted as part of the overall £20,000 limit. For example, they could pay £4,000 into their stocks and shares lifetime ISA, £5,000 into their adult cash ISA, and £11,000 into their adult stocks and shares ISA.

Lastly, up to £9,000 a tax year can be paid into a Junior ISA. Again, that could be split over a cash Junior ISA and a stocks and shares Junior ISA.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to askrachel@ajbell.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.