The Flexible ISA allows people to withdraw money and put it back in without losing any of their tax-free entitlement.
Speaking, George Osborne said:
"In 2 weeks’ time the changes I’ve already made mean people will be able to put £15,240 into an ISA. But if you take that money out – you lose your tax free entitlement, and so can’t put it back in.
"This restricts what people can do with their own savings – but I believe people should be trusted with their hard earned money.
"With the fully Flexible ISA people will have complete freedom to take money out, and put it back in later in the year, without losing any of their tax-free entitlement
"It will be available from this autumn and we will also expand the range of investments that are eligible."
In addition, Osborne announced a new Personal Savings Allowance that aims to take 95% of taxpayers out of savings tax altogether.
He added:
"From April next year the first £1,000 of the interest you earn on all of your savings will be completely tax-free. To ensure higher rate taxpayers enjoy the same benefits, but no more, their allowance will be set at £500.
"People have already paid tax once on their money when they earn it. They shouldn’t have to pay tax a second time when they save it.
"With our new Personal Savings Allowance, 17 million people will see the tax on their savings not just cut, but abolished."
The Building Societies Association’s Head of Mortgage Policy, Paul Broadhead, said:
“Over the last 20 years, we have moved from an economy based on saving to one based on borrowing. People need to be rewarded for thrift, to know that the Government values those who look after their own futures and help out savers at a time of low rates, whether they are saving for a deposit for their first home or for a rainy day.
“In last year's Budget, the Chancellor answered our call for sensible reforms to ISA rules, by scrapping the bureaucratic distinctions between cash and stocks and shares account. This year he has gone further with the Flexible ISA, and the Help-to- buy ISA, the principles of which we warmly welcome.
“Given the pressures to keep the bank base rate at 0.5%, the BSA pressed the Government to scrap savings interest taxation two years ago. A new £1,000 Personal Savings Allowance for basic rate taxpayers shows that the Chancellor has come round to our way of thinking, just in time for the last Budget before the General Election.
“In our Budget submission last year, the BSA called for Government support for savers and this year we asked the Chancellor to support home buyers. We are therefore delighted with the intent demonstrated by the Help-to-buy Buyer ISA - to help first time buyers to get over the deposit barrier.
“As ever, the BSA will be examining these proposals in detail and will work with Government and political parties to ensure the best outcomes from these policy ideas. We also call on all political parties to commit to supporting the reforms to savings interest tax and helping first-time buyers onto the property ladder.”
