Secretary to the Treasury Ed Balls gave further details of the Treasury’s planned ISA reforms at a speech to the ABI Saver Summit on Thursday. The biggest news is that the Treasury is proposing to allow funds saved in the cash component of an ISA in previous years to be transferred to the stocks & shares component of an ISA without impacting the annual investment limit. The move makes a great deal of sense. Investors needs and circumstances change over time, as does their ability to tolerate risk. Given that, it seems to us to be extremely counterproductive to prevent them from substantially modifying their cash allocations.
Balls also further fleshed out his 6 November announcement that the Treasury would abolish the much-maligned distinction between mini- and maxi- ISAs (instead
, investors will only have to choose between cash ISAs and stocks & shares ISAs). In his ABI speech, Balls said investors will be able to hold each type with a different provider if they wished. He also noted that the annual contribution limits for each type would continue to be different (they currently stand at £3,000 for cash ISAs and £4,000 for stocks & shares ISAs, but he gave no indication that the overall annual limit of £7,000 would be increased.
While we’re pleased investors will no longer have to struggle with the complexities of the mini and maxi rules and will retain the ability to select different providers for cash and stock-market components, the failure to commit to raise the annual contribution limit is disappointing. The overall annual limit has not changed since ISAs were first introduced in 1999. If the Government is serious that it wishes to encourage more long-term savings we believe that, at the very least, a plan to index the limit to the cost of living in some fashion would seem to be in order. Other items on our ISA wish list include the reintroduction of reclaimable tax credits for share dividends – well, we can but dream - and, ultimately, the elimination of all limitations on transfers between cash and stocks & shares ISAs. Still, it appears some much needed flexibility and simplification is being introduced to the ISA regime, and that’s a good start.
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