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Forget the Lifetime ISA, we need an 'Everything ISA'

The Association of Taxation Technicians has called for a revamp of the 'complex' ISA landscape.

Forget the Lifetime ISA, we need an 'Everything ISA'

Tax experts have called for an overhaul of the multiple individual savings accounts (ISAs) on offer, and proposed the ‘Everything ISA’ as a one-stop shop for savers and investors.

A report by the Association of Taxation Technicians (AAT) has criticised the number of ISAs available that brings ‘unnecessary complexity, bureaucracy, and confusion’, said chief executive Mark Farrer.

‘Some ISAs have age limits, some do not, some have a maximum savings limit of £20,000 per annum, one has a £4,128 limit, another £4,000, and the Help to Buy ISA offers a £50 bonus for every £200 saved, up to a maximum of £3,000,’ he said.

Farrar also pointed out the ‘mind-boggling interaction’ between different types of ISAs that means the total saved into a Lifetime ISA (Lisa) – a maximum of £4,000 a year - has to be deducted from the total (currently £20,000) that can be saved into a cash or stocks and shares ISA.

‘The introduction of more and more ISAs, the fact they interact poorly with each other, have a variety of different savings limits, as well as different rules and requirements has made the ISA savings landscape far from clear,’ he said.

‘It is now difficult for many to understand and thus acts as a disincentive rather than an incentive to save.’

In fact, many of the newly launched ISAs have been a flop - including the LISA and Innovative ISA - with fewer people signing up than expected.

To counter the problem, the AAT has proposed the ‘Everything ISA’, which would see junior ISAs for under-16s, cash ISAs, stocks and shares ISAs, and Innovative ISAs that invest in peer-to-peer lending, rolled into one wrapper.

All of these investments would then be seen on a dashboard of products via a single portal that would allow investors to monitor their money more easily.

AAT said the cost of the dashboard – which mimics the pension dashboard currently in development bringing together workplace and personal pensions – would be met by ISA providers. Any future ISAs such as a Workplace ISA or Patient Capital ISA could be folded into the Everything ISA.

To ensure the Everything ISA remained easy to understand, the group is proposing annual limits on all ISAs would be removed and instead everyone would be given a lifetime Everything ISA limit of £1 million with no income or capital gains tax to be paid, as is currently the case.

‘The rationale for this figure being that it both replicates the current pension lifetime allowance and perhaps more importantly is equivalent to an annual allowance of £20,000 a year for 50 years, sufficient for most savers,’ said Farrar.

AAT said the cost of tax relief on the Everything ISA would be outweighed by the benefits, including a higher savings ratio that would reduce ‘reliance on financial support from the state’.

It also believes the introduction of an all-encompassing ISA would negate the need for the Lisa, which AAT said could become the centre of a mis-selling scandal. The Lisa was introduced last year for those wishing to buy their first home or save for retirement.

The government hands out a 25% bonus to savers up to £1,000 a year if the maximum of £4,000 is saved. However, the money can only be used to buy a first home or accessed after age 60 without penalty. If the money is taken outside of these events then the bonus is removed, plus interest earned, and a 6.25% penalty is levied on top.

The report recommended closing the LISA to new entrants as ‘it may not always be as effective in saving for later life as most pensions, although there is a bonus there is no employer contribution or tax relief which could also represent a considerable mis-selling problem in the future’.

Former pensions minister Ros Altmann (pictured) said the introduction of new ISAs had added ‘unwelcome complexities or even penalties’ to what was supposed to be a simple savings product.

She agreed that there were ‘significant risks of a mis-selling scandal’ associated with the Lisa as it was ‘not suitable’ for many savers who were not receiving advice on whether they should use them.  

Altmann added that while owning a home was important it ‘should not be confused with, or undermine, putting money aside for retirement’ and workplace pensions were the best way for ‘almost every employee’ to save for later life.

6 comments so far. Why not have your say?

Malcolm Bridge

Mar 07, 2018 at 12:28

I'm pleased to see that this stupid and pointless ISA complexity is being thought about. However, shouldn't we remember that the original idea of ISAs (PEPs actually) was to encourage saving by the poorer members of society, not those with sufficient assets not to need the tax breaks. Let's have a reduction in the annual (or lifetime) limit to something more in line with what an average person can afford to save - say between £2K and £5K p.a. (or its lifetime equivalent). The additional tax can then be put towards the cost of the NHS and/or Social Care.

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Mr Debonair

Mar 07, 2018 at 13:27

ISAs really aren't that confusing, it just takes some time to read up about which ones will be most suitable for you.

Having an ISA that does everything will make it less competitive and less beneficial for most people.

@Malcolm Bridge - Your 'Robin Hood' attitude is part of the problem - A reduction in ISA subscriptions wouldn't affect the rich, but only penalise the middle class and poor. Why should you penalise someone who saves more for their life than somebody who spends everything? The 'real rich' would simply move their monies elsewhere. Comments like this is the reason why reports like this make the average person fear saving, investing and tax benefits!!

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Martin Hicks

Mar 07, 2018 at 20:31

I think the original idea behind the PEP/ISA schemes were to encourage more people to save regularly with the added incentive of tax free dividends and interest. PEPs were not used by most people as they were seen as too risky. This worked back when interest rates were 'normal' and the compounded returns thereby seen to be reasonable. However, the recent extended period of minimal rates hasn't been very encouraging for savers and Chancellors have introduced different schemes in order to boost take up. I suspect it unlikely that any significant changes will be made until better interest rates are on offer. Brexit could be this trigger when we actually get to leave the EU.

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Anonymous 1 needed this 'off the record'

Mar 08, 2018 at 11:19

I think all ISA providers should be made to provide Cash ISAs. Pending the forecasted stockmarket crash (when?) I hold cash with my ISA provider but whilst it is protected in a ISA wrapper it gains no interest, rather, it declines in line with inflation. I don't want to have the hassle of moving to another provider.


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Mar 10, 2018 at 11:16

Perhaps reconsider and look at using a provider that offers a flexible ISA, it solves this particular problem entirely and if the cash pile is large, may well be worth your while.

You're allowed to put back into the ISA whatever cash amount you take out, within the current tax year. I find it particularly useful for handling income and is very easy to shift cash piles to interest bearing accounts and return them to the ISA balance as required within, or just before (tax) years end, then roll over into the new tax year and repeat.

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Mar 10, 2018 at 13:42

It was when Brown changed the name in spite from PEPs to ISAs, because the Conservatives had introduced PEPs, that the concept became politicised. First ISAs had to be held separately from PEPs for Brown to make his mark. Charges then doubled. Then Osborne saw it as a way of attracting votes from alleged needy sectors of the electorate and the ISAs started to morph and get more selective in application involving more charges to be generated because of the nominee account status. More bureaucracy being created by a pseudo Conservative Government aiming only at increasing the appeal of the Party regardless of the actual expense to the ISA holder and the tax payer. But as the article says there was little take up and who is surprised? The irony is that regardless of the apparent political pride garnered from increasing ISA amounts, who has £20,000 spare cash to save? Very few ordinary people and hence the benefits go to the better off.

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