The Government’s ISA shakeup has received a mixed response – progress, but not overly exciting and something of a missed opportunity.
There had been talk of a Great British ISA with an additional £5-10,000 allowance provided the monies were invested in UK equities. It never happened.
Calls for the ISA saving limit to be raised were also ignored, frozen at £20,000 for another year.
Which prompted disappointment from Jason Hollands, managing director of investment platform Bestinvest.
Speaking to This Is Money, he said: “Tax-free ISAs are more important than ever before for savers and investors because of the steep cuts the Chancellor has made to the annual dividend allowance and capital gains exemptions, both of which are still set to halve again despite the Conservatives repositioning themselves as tax-cutters.”
However, there were pluses including, from next April, savers being able to hold bundles of ISAs and splitting their allowance according to their preferences. There are five types – cash ISAs, stocks & shares ISAs, Lifetime ISAs, innovative finance ISAs, and Junior ISAs. Under current rules, you can only pay into one of each type of Isa in a tax year.
MoneySavingExpert commented: “This will make things simpler for both cash savers and investors – cash savers will be able to open multiple new cash ISAs as new deals with higher interest rates become available, while investors will more easily be able to try out different stocks & shares ISA providers.”
Another innovation is that you’ll be able to invest in ‘fractional shares’ within stocks & shares ISAs in future. “Currently, investors can buy shares in companies and hold these within stocks & shares ISAs, so any gains are tax-free. At present, the official rules say you must hold at least one share in full. However, even one share of a big company can cost £100s, so the Government plans to allow savers to hold a fraction of a share in their ISA.”
Other changes take in allowing partial transfers between providers; expanding the Innovative Finance ISA to include long-term asset funds and open-ended property; and making the account opening age 18 for all ISAS.
The Government says the aim is to “simplify ISAs and provide more choice”. Nevertheless, some say the system will remain complicated.
Rachael Griffin, tax and financial planning expert at Quilter, told FTAdviser: “The ISA options available can be daunting for the average saver, potentially deterring them from saving altogether. A more streamlined approach, such as consolidating cash and stocks and shares ISAs into a single, more straightforward product, could significantly reduce this complexity.
“It’s about making saving and investing more accessible, understandable, and appealing to the average person.”
Adam Dodds, Freetrade CEO, welcomed fractional shares. “This is a victory for ordinary investors throughout the UK. Fractional shares enable customers with small and large portfolios to diversify their holdings much more easily than if they were only limited to holding whole shares.”
Andrew Tully, technical services director at Nucleus, agreed, saying it could be particularly appealing to young people who want to invest in expensive stocks, for example in tech companies. Yet more needed to be done. “Around three in five people only invest in cash. While that is a perfectly reasonable starting point for many, over time you are at risk of seeing the purchasing power of your money eroded by inflation. Allowing investment in cash and investments within the same ISA would allow the potential introduction of ‘nudges’ to help people make the best use of their saving – for example, a gradual move from cash to stocks and shares as people build up a decent cash nest egg.”