Mixed bag of ISA changes

The Spring Budget was a bit of a mish mash of changes when it came to ISAs.

ISA simplification has been high on our wish list for some time. There was an element of this in the changes that were announced, but tipping the scale firmly in the opposite direction was the headline-grabbing “GB ISA” (or UK ISA as is actually proposed, rather than the soundbite for the speech).

On the side of simplification, we have the aligning of minimum age requirements for all adult ISAs. Under the new rules you will need to be 18 years old to open a cash ISA, as is already the case for stocks and shares, innovative finance, and lifetime ISAs (LISAs).

With this rule change the bonus allowance available to 16 and 17 year olds will disappear. For many years it has been possible for those in this age group to use the full £20,000 adult ISA allowance in a cash ISA, in addition to £9,000 going into a junior ISA in their name in the same tax year.

Although this opportunity is being removed, it is a slow withdrawal, rather than a slam in the face from 6 April. Anyone who is 16 by 5 April 2024 can still open a cash ISA before their 18th birthday, even after 6 April. So, we could have another two years of under-18s opening cash ISAs and taking advantage of the double allowance.

Another change is the removal of the rule that says you can only pay into one ISA of each type in each tax year (except for LISAs, where the rule will remain). This is a straightforward change for ISA managers to implement, if unlikely to see a huge demand. This could potentially result in more ISA repairs if people do pay into more different ISAs, and so may be more likely to go over their allowance.

Partial transfers of current year subscriptions are also permitted from 6 April – if ISA managers decide to allow it. The changes are optional and the very late issue of not-very-straightforward regulations in this area mean this might not be as simple as it sounds.

Some simplification we didn’t get was any movement relating to lifetime ISAs. We would have liked to see an increase in the maximum house price it can be used for, and a cut in the exit penalty to 20%.

And then we come to the GB ISA. The government’s attempt to boost UK businesses is laudable, but a GB ISA is unlikely to be the answer. Those that max out their ISA allowance each year will welcome the extra £5,000 tax wrapper. However, it wouldn’t take much imagination to use the GB ISA for GB investments (however they end up being defined) and increase overseas investments in their main stocks and shares ISA, to maintain the balance of their portfolio. And for anyone who doesn’t use the full £20,000 allowance, there is no reason to open a GB ISA instead of a standard stocks and shares ISA that offers all the same investment options, plus many, many more. There is also a question of whether the GB ISA will be allowed to pay interest on cash – so it could well end up as a poor alternative.

Time will tell if the GB ISA ever comes into existence but even without it, we are still a long way off a simple ISA regime.