HMRC's 2024 ISA changes: What savers need know to maximise free cash

With the start of the new tax year In April comes the renewal of the £20,000 tax-free limit for Individual Savings Account (ISA), which allows savers to earn interest on their savings without it affecting how much they pay HM Revenue and Customs. But the 2024 tax year also brings with it a series of changes to the way these savings accounts work.

New rules make it easier for people to move their savings around to take advantage of new deals or better interest rates, or even have a greater say in how their savings cash is invested - making it important for anyone storing their savings in an ISA to ensure that they are making their money work for them.

While the rule changes also meant that 16 to 18-year-olds are now unable to open an ISA, with current Junior ISAs in limbo until the account holder turns 18. However, for savvy savers who are willing to shop around for a better deal, these changes will make it significantly easier to make sure they are getting the best deal possible.

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The four main types of ISA currently offered are: the easy to withdraw cash ISAs, the higher return stocks and shares ISAs, the investor-focused innovative finance ISAs, and the long term Lifetime ISAs.

You can now subscribe to multiple ISAs of the same type

With the exception of the Lifetime ISA, which is designed for long-term saving towards a mortgage or investment, savers can now open multiple ISAs of the same type to make the most of their savings.

Since April 6, savers have been able to open, for example, three separate Cash ISAs for the first time. Previously, money could only be paid into an ISA of each type each year.

For example, a saver could put £2000 into one Cash ISA to take advantage of a cashback or sign up bonus, while putting £5000 into another Cash ISA to make the most of a higher interest rate, before depositing the rest of their annual savings into a Lifetime ISA.

Guidance from HMRC indicates that each ISA provider will dictate whether they accept investors opening multiple savings accounts of the same type, while it is up to each saver to correctly report how many ISAs they have open.

You can transfer part of your ISA to maximise savings

Adding to the flexibility offered to savers who want to open multiple ISAs, people can now transfer their total or partial savings between different providers. This can boost how much interest your money is earning while it is sat in the ISA, and allow you to combine separate savings pots.

So long as the new ISA accepts transfers in from other ISAs, this will allow many savers to take up the better rates on many of the newer ISA products now being offered. Previously, if you invested £15,000 in one ISA during the tax year and wanted to transfer to another ISA, you had to move the full amount.

Many ISA providers are now offering free cash to savers that transfer their ISA over to them, with some advertising £1000 cashback for large transfers. However, it is important to check the interest rate on any of these accounts, as your compounded savings could be worth more in the long run.

Your ISA could protect more of your personal allowance

While this does not apply directly to the function of ISAs, the freezing of the personal tax allowance on income, as well as the cut to capital gains and share dividend allowances, makes reducing your overall tax burden even more important.

This is because you do not pay any tax on interest, income, or capital gains from an ISA. Meaning that changes to the way capital gains and share dividends are taxed that were announced in the Spring Budget are likely to make the four types of ISA more attractive to a wider group of savers and investors from this month.

From this month, the amount that each person can receive in capital gains tax free was halved to £3000, while the tax free allowance on dividends was slashed to £500. This makes any money received from investments more likely to eat into your annual personal income tax allowance, which is frozen at £12,570.

When you invest using a stocks and shares ISA, your money can grow without paying income tax on any dividends or interest you receive - making them more attractive to smaller scale individual investors.