In last week’s Autumn Statement, the government announced a few changes to the way individual savings accounts (Isas) work. While far from the full simplification that some had hoped for, the reforms do make life easier for investors and savers and were broadly welcomed by the industry.
From April 2024, Isas will become a bit more flexible. You will be able to open and contribute to multiple Isas of the same type during the same tax year. This could come in handy if you use more than one platform for your investments and require more than one stocks-and-shares Isa. An example of such a scenario might be an investor who has a diversified core portfolio of funds and investment trusts invested for the long term and only trades the holdings within it sporadically, alongside a smaller pot within which they invest in single-company stocks and exercise their views on the market, including some more frequent trading. Any of the main platforms would be great for the first Isa, but you could save quite a bit in fees by holding the second one on platforms that offer fee-free sharedealing, such as Trading 212.
Higher interest rates have made it much easier to hit the personal savings allowance, so a cash Isa is a viable option if you don’t use the entirety of your allowance for investments. The ability to pay into more than one cash Isa means you won’t necessarily have to choose between a fixed rate and an easy-access cash Isa.
Claire Exley, head of wealth services at Nutmeg, says that the rules around which combination of Isas you can contribute to in a single tax year “can often catch people out”. “Simplifying the rules allows people to save or invest in a way that suits their personal circumstances to achieve their goals,” she argues.
Additionally, with the current rules, if you want to transfer money you have invested in an Isa during the year, you must transfer all of it. From April, you will be able to partially transfer Isa funds between two different providers in the same tax year – although wealth manager atomos says that it remains to be seen whether this will be honoured by all Isa providers, given that “it would require significant changes to their systems”.
Innovative finance Isas will also be extended to include long-term asset funds (LTAFs) and open-ended property funds with extended notice periods. LTAFs are a new type of fund that invest in long-term illiquid assets such as private equity and infrastructure, and in order to prevent liquidity issues these funds require a minimum 90-day notice period for redemptions.
LTAFs and open-ended property funds may not be the best option for private investors to dip their toes into these asset classes, with investment trusts a more liquid and readily available option. Tom Selby, head of retirement policy at AJ Bell, says while LTAFs may work for institutional pension investors, it is hard to see the case for making them available to Isa customers. “We are talking here about an illiquid investment potentially being promoted in a world where people choose the product specifically because of the flexibility it provides,” he noted. Meanwhile Susannah Streeter, head of money and markets at Hargreaves Lansdown, believes open-ended funds are “not the way to invest in property because of liquidity concerns”.
