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Individual savings accounts will undergo their first structural changes in more than five years next April, after the UK government outlined a series of reforms intended to expand the current regime to boost growth.
Documents published as part of the Autumn Statement showed chancellor Jeremy Hunt would expand the current Isa regime to include long-term asset funds (Ltafs), a type of open-ended fund invested in illiquid assets. The investments can include private equity and real estate.
The government will also allow savers to pay into multiple accounts of the same type from April next year, while enabling partial transfers between providers.
Savers can currently hold multiple Isa accounts, but pay into only one of each type every year. This limits their ability to move funds between providers without requesting a transfer to maintain tax-free status.
The current £20,000 tax-free allowance will remain unchanged, while proposals to allow investments in fractional shares — portions of a single share — have been mooted as part of a wider consultation. A loophole enabling savers aged between 16 and 18 to double up on their allowance will be closed, meanwhile.
Reforms are designed to simplify the regime and tempt more savers to invest in equities, at a time when the government is eager to stimulate growth.
Hunt’s Mansion House speech in July set out reforms designed to channel pension savings into unlisted businesses, though Wednesday’s proposals did not feature previously trailed plans for a dedicated UK equities allowance.
Ltafs and open-ended property funds will be incorporated within the Innovative Finance Isa. However, the scheme has previously proved unpopular, raising only £17mn in 2021-22, compared with £4bn in stocks and shares Isas in the same period.
UK adults subscribed to almost 12mn Isa accounts in 2020-21 but the majority opted for cash Isas rather than investment products.
The £20,000 tax-free allowance has remained unchanged since 2017-18. It can be split between cash and other investments. No tax is payable on savings interest, dividends or capital gains, and withdrawals are not subject to income tax.
In meetings this year between industry leaders and the Treasury, officials asked Isa providers what measures could be delivered by the spring Budget in April, according to two people familiar with the matter.
Providers had hoped the statement would include plans to pare back withdrawal penalties for the lifetime Isa, a savings product that offers a 25 per cent boost to savings up to £4,000 for first-time home buyers.
The Investing and Savings Alliance (Tisa), a trade body, said it was disappointed that exit penalties had not been tweaked to make the current regime fairer for savers.
AJ Bell, the brokerage platform, said measures did not go far enough to simplify the current regime.
“The chancellor appears to have chosen to tinker at the edges rather than pursue radical Isa simplification,” said Tom Selby, head of retirement policy at AJ Bell. He labelled announcements “sensible” but said they failed to address current complexity.
The incorporation of fractional shares into the current Isa regime would help draw to a close a long-running dispute between HM Revenue & Customs and several brokerage platforms. It would enable young savers to continue buying stakes in expensive US stocks such as Apple, Amazon and Tesla.
Adam Dodds, chief executive of Freetrade, a trading platform, said plans to permit fractional shares were a “victory” for retail investors.
