With the Autumn Statement tomorrow, the attention of savers and investors will be focused on Chancellor Jeremy Hunt to see what changes he may have in store for their nest eggs.
Many rumours have been swirling around in anticipation of what changes the Autumn Statement could bring for Isas.
Experts think the most likely change is that the Chancellor will allow savers and investors to save into more than one Isa of each kind each tax year.
We look at the other changes experts expect or hope to see in the upcoming Autumn Statement for Isa savers and investors and who these changes would benefit most.
1. Paying into more than one type of Isa each tax year
At present, anyone who opens more than one type of cash Isa and one type of stocks and shares Isa can be charged tax on interest they earn and will have their second account shut down.
This means they risk missing out on unused tax allowances.
Tom Selby, of AJ Bell, says: ‘Recent reports suggest the Chancellor is planning to tweak Isa rules for next year, allowing people to pay money into more than one Isa of each type in a tax year.’
Sarah Coles, head of personal finance at Hargreaves Lansdown says: ‘This would be an eminently sensible move, making it much easier to open, pay into, and transfer Isas, and vastly reduce people’s chances of making a mistake that costs them dear.’
Who would it benefit: This change would make it easier for investors who want to try out different stocks and shares Isa providers.
While cash savers could be able to open multiple new Isas as new deals become available.
If savers were able to save into more than one type of Isa in each tax year, it could trigger more competition among Isa providers to offer better rates.
Savers could also make hundreds of extra pounds in tax-free interest by shopping around without the existing barriers.
2. Isa simplification
Investors are currently faced with a choice of six types of Isa when deciding where to invest, with different rules and allowances further clouding the picture.
Isa simplification measures could include merging the cash Isa and stocks & shares Isa into one account and removing the rules around only being allowed to contribute into one of the same type of Isa each tax year.
Tom Selby says: ‘Although Isas have become a recognisable and trusted savings vehicle, complexity and lack of understanding remains one of the biggest barriers to investing.
‘Only half the people in our research could correctly identify the main types of investment Isa and less than a third know the annual Isa allowance is £20,000.
‘If the Government brings forward a full review of Isas, this will provide a real opportunity to develop long-term proposals centred around stripping away unnecessary complexity and creating a single, simple ‘One Isa’ product that incorporates the best features of the existing landscape.’
Brian Byrnes, head of personal finance at Moneybox, says: ‘So far we have seen that the Chancellor is set to announce changes to allow savers to contribute to multiple Isas of the same type in the tax year, without impacting their £20,000 allowance.
‘These changes would be a welcome shift for millions across the country, giving people the flexibility to best-optimise their tax-free allowances.’
Who would it benefit: Simplifying Isas would make switching far easier, with customers able to hold cash, investments, or both in their account, and move between providers freely.
Some experts have said that today’s Isa market is essentially divided down the middle between investing and cash savings accounts.
3. Raising the Isa allowance from £20,000
Savers and investors can pay £20,000 into each type of Isa in one year, has been the case since the 2017/2018 tax year.
In order to keep pace with inflation, experts say the Isa allowance would need to be increased to at least £25,000.
Jason Hollands, managing director of BestInvest points out that: ‘Tax-free Isas are more important than ever before for investors because of the steep cuts the Chancellor has already announced to both the annual dividend allowance and capital gains exemptions, both of which are set to halve again next April.
‘We would like to see the real value of the allowance restored with an increase to at least £25,760 to adjust for the effect of CPI inflation since April 2017.’
Sarah Coles says: ‘It makes perfect sense to increase the overall Isa allowance. This was last changed way back in 2017, so would need to rise to more than £25,000 just to keep pace with inflation.’
Hargreaves Lansdown said it would also welcome a move to allow the Lifetime Isa allowance of £4,000 to be additional to the £20,000 allowance for Isas.
Coles says: ‘Allowing for the Lifetime Isa allowance of £4,000 to be additional to the £20,000 for Isas would help separate these products and clear up the single biggest misunderstanding about Lifetimes Isas. It would also boost incentives to invest.’
Who would it benefit: A bigger Isa allowance would be a shot in the arm for investors battered by cuts in the allowances for dividend tax and capital gains tax.
It would also help cash savers as the high-interest rate environment could result in savers with larger savings pots breaching their individual savings allowance.
For this reason, more savers than ever have been opting for cash Isas over the past few months as they offer considerably more suitable longer-term tax-free benefits than regular savings accounts.
4. Increasing the Lifetime Isa house price cap
The property price cap which can be purchased using a Lifetime Isa has stayed at £450,000 since its launch in April 2017.
If the Lifetime Isa limit had increased in line with property prices it would sit at more than £560,000 today.
This is one of the rumoured changes Hargreaves Lansdown is the concerned won’t make it into the Autumn Statement.
Sarah Coles says: ‘Calls to raise the limit on the price of a property you can buy with a Lifetime Isa appear to have been rejected.
‘Runaway house price rises over the past five years have rendered the £450,000 limit much less generous than it was back in 2018.’
Moneybox thinks ‘futureproofing’ the Lifetime Isa property cap would be a better reform for the Lifetime Isa.
Brian Byrnes says: ‘While less than 1 per cent of Moneybox Lifetime Isa savers have been affected by the property price cap to date, if the price cap had risen in line with house prices since its introduction in 2017, it would stand at £560,000 today.
‘By introducing an index-linked price cap subject to an annual review, we believe the government can provide much-needed reassurance and peace of mind to Lifetime Isa savers across the UK.’
Jason Hollands believed the Lifetime Isa house price cap should be scrapped altogether.
He says: Since the Lifetime Isa launched, UK property prices have increased by a third and the £450,000 property purchase cap is problematic in many parts of London and the South East.
‘In my view, the purchase price cap serves no rational purpose and should therefore be scrapped entirely.’
Who would it benefit: Aspiring homeowners may well view a probable end to interest rate hikes and reports of falling asking prices with cautious optimism.
For those thinking of buying their first home, an increase in the Lifetime property purchase limit would be a welcome boost.
5. Scrapping 25% withdrawal penalty for Lifetime Isas
It is inevitable some savers who are struggling will find they need to dip into their Lifetime Isa sooner than planned.
Under the current Lifetime Isa rules, if you withdraw money from a Lifetime Isa for any reason other than buying a first property before the age of 60, the Government withdrawal charge of 25 per cent will apply.
Any withdrawals within 12 months of your first payment will also incur a 25 per cent Government withdrawal charge.
The only other reason you can withdraw funds is if you are terminally ill.
Laura Suter says: ‘During the pandemic the government reduced the withdrawal charge on Lifetime Isas from 25 per cent down to 20 per cent, to allow people to access their savings penalty-free if they found their finances squeezed during the crisis.
‘Disappointingly, this was restored to 25 per cent, rather than changed permanently. It feels impossible that the Government doesn’t view the current cost-of-living crisis in the same way.
Moneybox has suggested that an ’emergency withdrawal allowance could be a realistic answer to the withdrawal penalty dilemma savers are faced with .
Brian Byrnes says: ‘While two in five Moneybox Lifetime Isa savers said this penalty helped them commit to their savings goal, it’s important to get the balance right between rewarding the efforts that LISA users are making to their long-term savings, and not penalising people for emergencies.
‘We believe that knowing some funds can be accessed in an emergency without penalty will actually help savers commit more to their long term goals.’
‘This is why we’re calling for the Chancellor to introduce an ‘Annual Emergency Withdrawal Allowance’ of £1,000 so people can withdraw from their Lifetime Isa in emergencies, without losing their own money.
This is another reform that Hargreaves Lansdown is concerned won’t make it into the Autumn Statement.
Sarah Coles says: ‘Cutting the Lifetime Isa penalty would remove the single biggest concern people have with the Lifetime Isa.
‘At the moment if you need to withdraw money for any reason other than a first time property or after the age of 60, the 25 per cent penalty currently not only claws back the Government bonus to save, but also applies an additional 6.25 per cent penalty based on the amount invested.’
Who would it benefit: Reducing the exit fee would be a low-cost move for the government that would help first-time buyers who saved into their Lifetime Isa in good faith but, due to soaring inflation, now need to dip into their savings.
Coles brands the penalty as ‘a horrible price to pay for trying to do the right thing.’