ISA simplification? Not as simple as it sounds, even if contractors might welcome it at Autumn Statement 2023
With fiscal drag due to net the government a record-breaking £40billion a year, shrewd contractors should be calculating that, with tax allowances frozen, now’s the time to be clever and make the most of every possible break available to us, such as with the tax-free saving which an ISA offers, writes Angela James of Yolo Wealth.
A tight-lipped Treasury
Our advisory anticipates that more people will become aware of their ISA allowances as Autumn Statement 2023 nears, especially with rumours that the vehicles will be shaken-up.
Interestingly, amid the rumours, four MPs have asked the Treasury to come forward with any detail or plan about how LISAs might change (a persistent Andrew Rosindell MP even asked twice!). But we’re all still none-the-wiser.
Professionally, and based on the contractor financial planning I’m across, one change to ISAs which I would welcome would be to increase the annual allowance of an Individual Savings Account, which has remained frozen for SIX years.
Fatter ISAs would be fairer ISAs
It seems only right to provide some increase to ISA capacity now, and maybe with the bigger than officially expected haul from fiscal drag (£10 billion more than forecast) due to runaway inflation, chancellor Jeremy Hunt might feel it’s fair to act.
For the uninitiated and boding well for a tweak on November 22nd, ISAs have evolved quite a lot over the years. In its early form, your ISA allowance was split between Stocks & Shares (S&S) and cash, providing a higher proportion of the allowance for S&S. This changed in 2014 giving you the choice yourself to decide how much (if any) you wanted to split across cash or S&S.
We then saw the launch of further types of ISAs such as the Help to Buy ISA, replaced by the Lifetime ISA (LISA) and latterly, the Junior ISA. Some streamlining or ‘simplification’ to ISAs does therefore seem sensible at next month’s Autumn Statement.
Practical obstacles to paring back the UK's ISA medley
But I’m not entirely sure how practical unpicking people’s existing saving vehicles would be. Or how popular it would be, at a politically concerning time for the government, with a hypothetical vote tomorrow going 43% to 27% against them and in favour of Labour.
Those practical barriers of reducing today’s six ISAs to just one single ISA, as has been floated, are perhaps more significant than the political mood music.
Investment houses are good at what they do, and banks and building societies do what they do equally acceptably. So how can one organisation offer the best solution to both? Would the competition in the ISA market be diluted to just a single product?
Contractors and other serious savers I know really like the choice and freedom when it comes to saving -- and to source the best cash or S&S ISA from the market is part of that. It’s a variety I think Mr Hunt will want to protect.
Streamlining = simplificaton / complication
Also, what if the provider who meets your needs for the best cash rate ISA doesn’t give you the best solution for the investment part of your ISA? In the same vein, I struggle to see how you could, say, incorporate a Lifetime ISA with its specific rules of being used for retirement or to buy your first home and it attracting the 25% government bonus, but then have it wrapped up under the same ISA as your cash or S&S -- which of course doesn’t have the same rules!
Streamlining suggests simplification, but if you consider all the aspects, it could actually make things all the more complicated. And looking at the umbrella company sector, complication tends to make this government stand back and leave Pandora’s box closed.
Hunt's pre-election giveaway on November 22nd?
The other thing making me think the rumour mill might have got ahead of itself on ISAs? Well, there is always speculative noise in the run up to Budgets and Autumn Statements, so the prospect of changes to tax-free saving seems as regular as the chancellor’s statements themselves -- even though changes emerge much less often. That said, for a seemingly serious Treasury boss clearly more restrained than his predecessor who vowed to rip up IR35 reform, adding a few extra thousand to the capacity of an ISA could be his idea of a ‘pre-election giveaway;’ and I for one hope that it is.