Autumn Statement: Jeremy Hunt plans ISA overhaul
Chancellor Jeremy Hunt is planning to overhaul the ISA market in the Autumn Statement, which could result in a higher tax-free allowance and less products.
Treasury officials have reportedly met with investment industry executives in recent weeks to discuss how to simplify the current selection of ISA products, according to people briefed on the discussions.
Treasury sources said that ministers wanted to use November’s financial document to simplify “a complex landscape” and encourage more people to save in ISAs.
Read more: AJ Bell founder calls for IFISAs to be axed
The Financial Times report said that the Treasury is mulling a single, combined ISA for cash savings and stock market investments, to make it easer for people to save and invest tax-efficiently.
Industry executives involved in the talk reportedly agree that reform of the ISA market is needed, with calls for the abolition of the Innovative Finance ISA and the Lifetime ISA.
The Treasury is also considering an additional ISA allowance for investing in UK companies, according to the report.
While plans are at an early stage, officials are keen to explore ways of boosting investment in UK companies.
Read more: Exclusive: Largest IFISA providers revealed
Private share ownership in the UK has declined substantially since the 1960s, from around half of UK quoted shares by value to around 12 per cent.
Hargreaves Lansdown welcomed the idea of boosting the ISA allowance but warned that other changes could actually result in a more complex market.
“Increasing the allowance – set back in 2017 – would be a real boon for investors who have maxed out their allowances and now face harsh tax penalties on investments held outside an ISA,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
“Increasing the existing allowance by £10,000 to £30,000 could mean capital gains savings of £35,490 over 20 years for a higher rate taxpayer investing in stocks and shares.”
However, Coles said that the idea of a UK-specific ISA allowance “adds a needless extra layer of complication”.
Read more: Budget: Call to streamline ISA market is ‘pre-emptive strike’ on IFISAs
“[Increasing the existing allowance] would…automatically encourage more UK investment,” she said. “Over the past year, broadly three-quarters of investments have been in the UK anyway, and most investors buy and hold for the long term.
“The fact that increasing the allowance will naturally boost UK investment means any notion of a UK-specific ISA allowance adds a needless extra layer of complication. Efforts would be far more usefully expended revisiting the advice/guidance boundary. This would help move people into investing for the longer term – building engagement and confidence.”
Coles added that the proposal of a single cash and stocks and shares ISA would “over-complicate things for savers”.
“In merging cash and stocks and shares ISAs, it would need to be ensured that cash ISA customers would not get communications on investment issues, which could be off-putting and confusing for people who only want to keep their money in cash,” she said.
“There are, however, a number of changes that could provide real, material benefits. Chiefly, it should be possible to pay into as many ISAs as you like each tax year provided you stay within the overall £20,000 ISA limit. This change would make it much easier to open, subscribe and transfer ISAs, and remove a layer of needless complexity.”