The world of ISAs can be a minefield. You can put £20,000 a year in an ISA. Unless it’s cash, then this allowance will reduce to £12,000 from April 2027 – but only if you’re under 65.
Or if it’s a lifetime ISA, then it’s £4,000 a year, but that’s being replaced by a first-time buyer ISA soon. If you’ve got a lifetime ISA you won’t be able to move it, but if you have an old help to buy ISA you might.
If you’ve got a stocks and shares ISA, you can currently move it to a cash ISA – except from next year you won’t be able to. Instead, you can move it to cash within the stocks and shares ISA itself. Careful though, as you’ll soon get taxed if you do.
You can use the lifetime ISA to save for a home, but if you don’t you’ll pay a penalty. Unless you save it for retirement instead, in which case it’s fine.
You can also open an innovative finance ISA. Although, I’ve been a financial journalist for nearly a decade and I’ve genuinely never heard of anyone actually doing so.
Are you keeping up? This is currently how the landscape of ISAs works – along with a sprinkling of extra rules not mentioned above.
Once a vehicle designed to help people save tax-free, ISAs are now a mish-mash of various different savings accounts and investment wrappers, each with their own set of regulations and restrictions.
It’s hard enough to understand if you cover money for a living – I don’t know how the general public is supposed to do so.
The best personal finance policies are those which you don’t need a degree in accounting or economics to understand.
Think auto-enrolment, where a small portion of your work earnings are by default put into a pension fund for your retirement.
You don’t have to think or do anything or act to do the sensible thing and save for later life.
The worst government interventions are those which make things more complicated.
The Government’s cash ISA reforms – reducing the cash allowance for under-65s, banning transfers from stocks and shares ISAs, and taxing uninvested cash in them – are doing exactly that.
And that’s now been coupled with the introduction of a new first-time buyer ISA that the Government will launch instead of just fixing the problems with the existing lifetime ISA – which is designed to help people save for a home.
ISAs should be simple. Put £20,000 away in cash or investments each year, and your money can grow tax-free without you having to worry about filling in a self-assessment for HMRC.
Now that we’ve stepped so far away from that principle – with multiple products, allowances and rules – we’re in danger of turning the public away from saving or investing.
This is presumably the exact opposite of what the Government wants to achieve.
It should reconsider whether its policies are fulfilling its intended goal.
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