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Chancellor Jeremy Hunt is planning the biggest shake-up to Individual Savings Accounts in years to persuade more people to take advantage of the tax-free vehicles and use them to back London-listed companies.
UK Treasury officials have met investment industry executives in recent weeks to discuss how to simplify the current array of Isa products and remove barriers to investing in the stock market, according to people briefed on the discussions.
One radical option being considered is an additional Isa allowance for investing in UK companies, according to these people, although this work is said to be at a preliminary stage.
Other ideas discussed include enabling cash savings and stock market investments to be held within a single Isa, rather than separately as they are now, making it easier for millions of people to save and invest tax-efficiently for the long term.
Treasury insiders said ministers wanted to use the Autumn Statement in November to simplify “a complex landscape” and encourage more Isa savings.
Hunt’s Mansion House speech in July set out reforms intended to channel billions of pounds of the UK’s pensions savings into boosting growth; the Isa reforms aim to generate more retail savings to achieve the same goal.
Industry executives involved in the talks agree reform of the “over-complicated” Isa landscape is needed, with questions raised over the future of the Innovative Finance Isa — which allows investment in peer-to-peer loans but has seen very low take-up — and the Lifetime Isa for under-40s — criticised for being too complex.
The Treasury said it was “receptive to ideas of how we can make Isas more attractive to encourage people to develop a savings habit and to invest in a way that works for them”.
Officials were keen to explore ways of using the accounts to boost investment in UK-listed companies, according to one person close to the discussions, who cautioned that an additional allowance for FTSE companies would add complexity and require an overhaul of how transactions are reported to HM Revenue & Customs.
Platforms are eager to increase retail investor participation in the stock market. Private share ownership in the UK has declined substantially since the 1960s, when individual investors held more than half of UK quoted shares by value. Despite the “Tell Sid” era of 1980s privatisations and the launch of tax-free Isas in 1999, that figure is now about 12 per cent.
UK adults can save or invest up to £20,000 into an Isa each tax year, which can be split between cash and other investments. No tax is payable on savings interest, dividends or capital gains, and withdrawals are not subject to income tax.
UK adults subscribed to almost 12mn Isa accounts in 2020-21 but the majority opted for cash Isas rather than investment products.
An estimated 4.2mn Britons hold investible assets of more than £10,000 in cash. Simplifying the Isa regime would support the Financial Conduct Authority’s aim of encouraging more people to invest their long-term savings tax-efficiently in the stock market.