April 2005 ISA changes confirmed

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
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edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
The Inland Revenue have published on their website that the amended regulations for ISAs were laid before Parliament on Tuesday.

The amendments allow:
- for the merging of the Stocks & Shares and Insurance components.
- Insurance products to be subject to the cash like test
- allow the Stakeholder cash deposit product and Stakeholder medium-term product into the ISA.

What does this mean for you?
In short for most people nothing.

The annual limit for the expanded Stocks & Shares component (to include insurance products) will be increased to £4000 from 6th April 2005.

Insurance ISAs will be subject to the "5% test". I think this means that if the policy is guaranteed to return at least 95% of capital within 5 years then it will be treated as a Cash ISA.

If you currently invest in the life insurance component and another component you will need to find out if your life insurance ISA will become a Cash ISA or a Stocks & Shares ISA - according to the Revenue most will be Stocks & Shares ISAs. You may need to re-evaluate your ISA strategy if you invest in a life insurance ISA and a Cash or Stocks & Shares ISA with separate providers as you will only be able to contribute to one provider in the cash component and one provider in the stocks & shares component.

For example, if you currently invest in a insurance isa with manager A and stocks & shares ISA with manager B, and your insurance isa falls into the stocks & shares ISA next year, you will need to decide which you are going to stop paying into, or alternatively move them to the same ISA manager.

The Inland Revenue has stated that all ISA investors must be notified of the change so you should get some more details from your ISA manager before April.

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