UK

Isa shake-up will help savers make most of top-paying accounts

Experts welcomed the reforms but said the Government could have gone further (Peter Byrne/PA)
Experts welcomed the reforms but said the Government could have gone further (Peter Byrne/PA) Experts welcomed the reforms but said the Government could have gone further (Peter Byrne/PA)

Savers will be able to open more than one Isa of the same type each year, in a move which could help people to shift their money around and make the most of the top-paying accounts.

The Government will allow multiple subscriptions to Isas of the same type every year from April 2024.

Partial transfers of Isa funds will be allowed in-year between providers from next April.

Adults can currently newly save up to £20,000 into Isas per tax year and the subscription limit will be maintained at the current level in 2024/25.

Annual limits for the Junior Isas (£9,000), Lifetime Isas (£4,000 excluding the government bonus) and Child Trust Funds (£9,000) will also remain at their current levels for 2024/25.

Experts welcomed the shake-up but said the Government could have gone further, for example by reforming the Lifetime Isa, which helps first-time buyers to save for a home.

David Postings, chief executive of UK Finance, which represents the banking and finance industry, said: “We welcome plans to introduce more flexibility and simplification of Isa rules and look forward to working with government on implementing changes to help more people save for the future.”

Dean Butler, managing director for retail direct at Standard Life, part of Phoenix Group, said: “Savers who subscribed to a fixed-rate cash Isa earlier this year will have watched as the rates available on the market climbed higher and higher.

“The ability to start saving into another cash product mid-way through the tax year could prove to be a major win for people in this situation and could also incentivise providers to improve rates. There are also likely to be some customers who want to mix fixed-rate deals and easy access savings to give them greater flexibility with their savings and this type of proposal could help them.”

Rachael Griffin, tax and financial planning expert at wealth manager Quilter, said the move “is a step in the right direction for invigorating the savings culture in the UK. However, the real issue at hand is the complexity of the current Isa system”.

“The multitude of Isa options available can be daunting for the average saver, potentially deterring them from saving altogether. A more streamlined approach, such as consolidating cash and stocks and shares Isas into a single, more straightforward product, could significantly reduce this complexity,” she said.

James Needham, chief product officer at financial services mutual Wesleyan, said: “The Isa reforms announced today are a positive step and we’d encourage any strategy that helps more people save and invest for the future.

“There’s no doubt that Isas can be a productive savings and investment vehicle, and the Government would do well to simplify the current system to make Isas more attractive and accessible to more people.

“Effectively increasing the annual Isa allowance would be another welcome step, making the Isa market more competitive and enabling more people to earn tax-free interest.”

Jason Hollands, managing director of investment platform Bestinvest, said: “It was disappointing to see that the Isa allowance will remain frozen at £20,000 per adult, a level it has been stuck at since the 2017/18 tax year.

“To restore the real value of the allowance to where it was then, it would need to increase to at least £25,760 to adjust for the effect of CPI (Consumer Prices Index) inflation since April 2017.”

He added: “Another missed opportunity is the absence of proposals to reform the Lifetime Isa (Lisa).

“This was first introduced in 2017 and has an important role to play in helping people under 40 save for their first property. But there are design flaws that should have been addressed. These include the freezing of the allowance at £4,000 since launch – which would now be worth over £5,000 if adjusted for inflation – and a cap on the value of the property that Lisa money can be used to purchase at £450,000.

“Since the Lisa 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 Lisa purchase price cap serves no rational purpose and should have been scrapped entirely.”

Robin Fieth, chief executive of the Building Societies Association (BSA), said: “We welcome the initiative to simplify Isas but are disappointed there were no changes announced to reduce the Lifetime Isa penalty or to raise Lisa and Help To Buy Isa property price thresholds, which we have long been calling for.

“Another reform that would have helped savers would have been to raise the personal savings allowance (the tax-free amount on savings interest).”