In the world of tax wrappers, the abolition of the lifetime allowance on pension contributions is currently taking up a lot of oxygen.
However, there are developments afoot, with individual savings accounts (Isas) too, and in the Autumn Statement on 22 November 2023 the chancellor announced several rule changes with a view to simplifying Isas.
From April 6 2024, investors will be able to pay into multiple Isas of the same type in the same tax year.
Partial transfers of current-year funds between providers will be permitted. Investors will no longer need to reapply when paying into a dormant Isa.
Also, the minimum age for an adult cash Isa is also being increased to 18 from 16, which will mean it is aligned with other adult Isas.
We do not yet have the regulations for how the changes will be implemented, but these are all promising developments that will make life simpler and easier for providers, advisers and investors.
I also look forward to seeing how HM Revenue & Customs plans to digitise the Isa reporting system and make fractional share ownership possible.
However, there are still areas of Isa reform that are worth looking at. Here are two developments I would like to see and one I would not.
The first relates to the distribution of Isas on death. Currently, an investor’s Isa can effectively be passed to their surviving spouse when they pass away, but the mechanism for this – the additional permitted subscription – involves giving the spouse a one-off increased allowance equal to the deceased’s Isa.
The spouse can then pay the funds they inherit from the deceased’s Isa, or funds they hold elsewhere, into their own Isa to take advantage of the increased allowance.
If that sounds a bit confusing, it is because it is. It would be much more straightforward to simply allow the deceased’s Isa funds to be transferred directly to an Isa in the name of the spouse, avoiding this unnecessarily circuitous process.
Also, what is next for the Lifetime Isa (Lisa)? Investors used to have a nice binary choice between an Isa and a pension. The Isa comes with tax benefits, the pension comes with more tax benefits, but it is locked away until age 55 (soon to be 57).
In 2017, however, the Lisa gate-crashed that decision-making process by introducing a third option that has elements of both an Isa and a pension.
It could be politically perilous for the government to withdraw support for first-time home buyers, and it has thus far resisted calls to implement a bigger overhaul of the Isa framework.
If the Lisa is to remain, I would call for the withdrawal charge (which is payable on withdrawals other than for a house purchase or retirement) to be reduced to 20 per cent from 25 per cent.
This means it would just recoup the initial bonus plus any growth on it and no more. I would also re-examine whether the £450,000 limit for a first home should be higher.
