Jeremy Hunt’s ISA allowance increase could offer ‘elegant solution’ to two key issues | Personal Finance | Finance newsbhunt


An expert has said plans to increase the ISA allowance could benefit savers although it’s not yet clear how the reforms would work.

Rob Morgan, Chief Investment Analyst at Charles Stanley, said: “On the surface, an additional allowance for UK stocks presents an elegant solution to two issues: The UK’s waning shareholder culture and the general lack of interest in the UK stock market, as well as the increasing tax burden on small shareholders.

“The present ISA allowance has remained frozen for several years and the dividend allowance, the annual tax-free amount a taxpayer can earn in income from shares, has all but withered away; it’s due to fall to just £500 from next tax year (24/25), a tenth of its level in 2017.”

He suggested if the current £20,000 ISA allowance was increased in line with inflation, this would take it to over £25,000, so an additional allowance of £5,000 may be on the cards.

Turning to the idea of a new ISA product, Mr Morgan said this goes against calls for ISAs to be made more simple.

He commented: “Over the years a once-simple ISA regime has morphed into a many-headed beast with such variations as Help to Buy, Innovative Finance and Lifetime ISA popping up, potentially exacerbating lack of consumer understanding.

“It also raises a significant number of questions about how it would be designed and implemented.”

He said these questions include what actually constitutes a UK investment or a UK-listed share that would be eligible for the savings vehicle.

Mr Morgan added: “Would this be a separate extra allowance or part of an expanded ISA wrapper? The former would create yet another product and the latter would represent a challenge for monitoring and reporting.

“Any segregated allocation would rise and fall at a different rate to the rest of the investments in an account, and selling and buying activity would further complicate matters.”

ISAs come with benefit of being tax free – a person does not pay tax on any interest from an ISA or on any income derived from an ISA.

Another question for ISA savers is what will happen with interest rates, after the Bank of England held the base rate at 5.25 percent in their latest decision.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said at the time: If you haven’t switched your easy access rate for some time, it’s also worth making a move while there are some really attractive rates on the market.

“However, this isn’t time to panic. If your current fixed rate deal doesn’t come to an end for a while, don’t lose faith.

“The Bank of England’s insistence that the fight against inflation is ongoing means we could see more rises further down the line, and at the very least is likely to mean it keeps interest rates higher for a considerable period.”

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