Budget round-up: investments

The chancellor surprised commentators by delivering significant news for Isa investors: a major hike in the allowance from £11,520 to £15,000 in July, as well as modest increases in the Junior Isa and Child Trust Fund allowances, from £3720 and £4000.

Alongside this major boost to the sheer size of the nation’s favourite tax-free savings allowance, he announced reforms to make Isas simpler and more flexible, with the creation of a ‘New Isa’.

To date there have been separate allowances for cash Isas (£5760) and stocks and shares Isas (£11520) with transfers allowed from cash Isas into stocks and shares, but not the other way round. In this Budget, it was announced that these allowances would be merged into a single allowance, massively hiking the amount that more conservative cash-based savers can shelter from the taxman.

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The move represents a victory for the banks and building societies that have doggedly lobbied for such a measure for years but it has also vastly improved the flexibility for all savers and investors, enabling them to switch to and from cash, shares and bonds.

It may also potentially help unlock some of the vast wall of money sitting in cash ISAs into equity and bond funds, as the transfer market between the two has never been buoyant.

For more sophisticated investors, the chancellor said he would make the Seed EIS scheme, aimed at providing support for start-ups, “permanent”.

By this he meant an extension of an aspect of the Seed EIS reliefs that originally had been temporary, namely the ability to eliminate a capital gains tax liability by investing in Seed EIS as well as receive 50 per cent income tax relief, equating to up to 78 per cent relief.

But it was not all cheer for investors in tax-efficient schemes. The chancellor vowed to tackle the potential “misuse” of EISs and VCTs, in particular the use of “contrived structures to allow investment in low-risk activities that benefit from income guarantees through government subsidies”.

HMRC surely has in mind the focus of some VCTs on financing renewable energy companies. Limited life VCTs are now likely to focus almost entirely on asset-backed businesses where financing can be secured with a charge against a freehold property.