Patricia Mock, tax director, Deloitte, comments on today's Budget changes to ISAs.

"Two main ISA changes were announced today.

"Firstly some welcome flexibility will mean that savers can withdraw money from their ISA in the year of subscription and replace this without losing their limit for the year. Normally any withdrawal from an ISA means that the tax exempt status is permanently lost. However, this flexibility only extends to withdrawals and reinvestments in the year of subscription so the flexibility is limited, though would probably be welcomed by those with short term cash problems.

"Secondly a new ISA product is to be introduced to assist those saving to purchase their first home. In principle the Help to Buy ISA will enable savers to invest up to £200 per month (together with an initial £1,000 when the account is opened) into this new ISA account. Each buyer will only be able to open one Help to Buy ISA account in the 4 year period after the scheme opens, although joint buyers will each be able to have an account.

"The Government will provide a tax free bonus of 25% of the amount saved in the Help to Buy ISA, up to a cap of £3,000 on total savings of £12,000. The bonus (although not necessarily the total savings) must be used to purchase a first home (which must be used as a home, not a buy to let) in the UK with a purchase price of £450,000 or less in London and £250,000 or less outside London. The restrictions will be enforced by the scheme administrator, and there are to be discussions around how the administration will work.

"This is a welcome innovation for those trying to fund a new house, providing a tax free bonus of £3,000, although because of the fairly low savings permitted, it would take 4 ½ years to build up sufficient savings to get the maximum bonus.

"The annual investment that can be made in the first year is only £3,400 compared to £15,000 in a normal ISA. It seems that an investor cannot subscribe to both a Help to Buy ISA and another cash ISA in the same year, but it is not clear whether this refers to the year in which the Help to Buy ISA is first opened or throughout the life of the investment. Either way, investors will find that other savings will not be tax-sheltered in an ISA if a Help to Buy ISA is used, although they will of course be able to take advantage of the new Personal Savings Allowance of £1,000 (£500 for higher rate taxpayers) to exempt additional savings from tax."

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