Rumoured plans for the introduction of the “utterly bonkers” British Isa to invest in UK-based companies did not materialise in the chancellor's Autumn Statement.
Calls for the Isa saving limit to be raised were also ignored as the limit was frozen at £20,000 for another year.
Despite this, a raft of Isa changes were featured in documents accompanying Chancellor Jeremy Hunt’s statement to MPs.
The government said it will make changes to “simplify Isas and provide more choice”.
From April 2024, savers will be able to hold more than one of a particular type of Isa in a year.
Under current rules you can only pay into one of each type of Isa in a tax year.
This was welcomed by the industry but other rumoured Isa changes were not included.
This included a raising of the Isa limit, an increase of the house price limit for the Lifetime Isa from £450,000 where it has remained since 2018, and a scrapping of the 25 per cent penalty that applies for withdrawals before the age of 60 from the Lifetime Isa which are not for the purposes of buying a house.
A notable omission was the British Isa, a proposal to add an additional £10,000 onto the current allowance for investment in British growth companies.
The document read: “The government is making changes to simplify Isas and provide more choice, meaning it will be easier for people to choose the best Isa accounts for their needs and move money between them.
“This involves digitalising the Isa reporting system to make it more effective, as well as expanding the investment opportunities available in Isas to include Long-Term Asset Funds and open-ended property funds with extended notice periods.”
The full list of changes to Isas from April 2024:
- Allowing multiple Isa subscriptions
- Allowing partial transfers between providers
- Removing the requirement to reapply for an existing Isa annually
- Expanding the Innovative Finance Isa to include long-term asset funds
- Expanding the Innovative Finance Isa to include open-ended property
- Allow certain fractional shares contract as permitted investment
- Digitalise the Isa reporting system
- Make the account opening age 18 for all Isas
- Freeze Isa limits at £20,000 for 2024/25 (£9,000 for Junior Isa/ child trust fund and £4,000 excluding government bonus for Lifetime Isa.
Lifetime Isa provider OneFamily is now calling on the government to overhaul the "outdated" property cap limit of £450,000, which has remained the same since the account was introduced in 2017.
Jim Islam, CFO at the company said: “The Lifetime Isa is an excellent product which has helped tens of thousands of people, but more could be done to support those who want to get on the property ladder.
"We are asking for the penalty Lifetime Isa holders pay when withdrawing savings from their account for any purpose other than buying a first home or retirement to be reduced from 25 per cent to 20 per cent. People who have worked hard to put savings aside should not be penalised for needing the money for urgent reasons, particularly during a cost-of-living crisis.
“We urge the government to increase the cap so people are not hit unfairly by the penalty and to commit to reviewing this regularly in line with house prices.”
Complex system
Rachael Griffin, tax and financial planning expert at Quilter said allowing multiple subscriptions is a “step in the right direction” but thinks the Isa system is still too complex.
She said: “The multitude of 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 addition to Isas. He said: “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 echoed this sentiment, saying it could be particularly appealing to young people who want to invest in expensive stocks, for example in tech companies.
He added: “We’re in danger of Isas becoming too difficult and complex for people to understand. Many of the restrictions caused by having multiple different variants put barriers in the way of customers.
“Allowing people to hold more than one of a particular type of Isa in a tax year is helpful and will make it easier for people to save. But we need to go further.
“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.”
tara.o'connor@ft.com
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