PEP and ISA Reforms
April 2008

In late 2006 the government made the decision to bring in
some changes to ISAs. These changes will affect all ISA investors and providers and are designed to simplify the current rules and regulations as well as to allow the investor greater flexibility in how they can invest their allowance.

It should be noted that the government has confirmed their commitment to the future of ISAs and hence they are available indefinitely and have no set end date.

Effective Date
The new rules come into force on 6th April 2008 and will automatically take effect, so the investor does not need to take any action as a result of the reforms.

Key Changes

• ISA Types

• New Subscription Limits

• ISA Transfers

• All PEPs to become ISAs

ISA Types
From the effective date the investor will be able to subscribe to two separate ISAs, a cash and / or a stocks and shares ISA, with the terms ‘mini’ and ‘maxi’ no longer being used.
The changes will also affect existing ISAs, so that from the 6th April 2008 all ISAs will either be a 'cash ISA' or a 'stocks and shares ISA'.

New Subscription Limits
The overall annual ISA subscription limit will increase from £7000 to £7200. The entire allowance can be invested in a stocks and shares ISA or up to £3600 can be invested
into a cash ISA with the remaining £3600 being eligible for investment in a stocks and shares ISA.

It is important to note that it will not be possible to subscribe to two ISAs of the same type
in the same tax year.

ISA Transfers
No changes are being made to the rules regarding transferring like for like ISAs. The new regulations will, however, allow a cash ISA to be transferred to a stocks and shares ISA.
If transferring a cash ISA from the previous tax year, the investor will be able to transfer some or all of the money without affecting their current tax year allowance. If transferring an ISA from the current tax year it will be possible to transfer a cash ISA into a stocks
and shares ISA but the entire amount invested in the cash ISA would need to be transferred out. It will not be possible to transfer a stocks and shares ISA into a cash ISA and, once a cash ISA has been transferred to a stocks and shares ISA it cannot be transferred back again.

All PEPS to become ISAs
As of 6th April 2008 all PEP accounts will become stocks and shares ISAs and will therefore become subject to ISA rules. This means that, from the effective date onwards, interest received on any cash balances will have a flat rate of 20% deducted by the ISA manager and paid to HMRC.

To discuss how these changes may affect you, please call one of our advisers on:

T: 01483 205890