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  3. UK Treasury Tinkers With ISAs To Encourage Saving

UK Treasury Tinkers With ISAs To Encourage Saving

by Jason Gorringe,, London

06 August 2007

The Economic Secretary to the Treasury, Kitty Ussher has laid Regulations before Parliament that will implement a reform package for Individual Savings Account (ISAs).

The package of measures aim to make ISAs more attractive by increasing certainty, making the regime simpler and more flexible, and by increasing how much people can save in an ISA.

Key elements of the reform package, which comes into effect from 6 April 2008, are:

  • ISAs are available indefinitely;
  • All Personal Equity Plans (PEPs) will automatically become stocks and shares ISAs;
  • Savers can transfer money saved in cash ISAs into stocks and shares ISAs;
  • A new structure and limits, removing the Mini/Maxi distinction. From April 2008, every adult will have an annual ISA investment allowance of GBP7,200. Up to GBP3,600 of that allowance can be saved in cash with one provider. The remainder of the GBP7,200 allowance can be invested in stocks and shares with either the same or another provider.

Commenting on the reforms, Ussher said: "The ISA has been successful in helping more people to save in a tax-efficient way. Over 17 million people now invest in an ISA, more than double the number who ever held a TESSA or PEP. These reforms - to come into effect in April next year - will build on the success of ISAs, making them even more attractive by allowing people to save more, and by being more flexible and simpler to use."

The move has been commended by the savings industry, with the Investment Management Association urging investors to take advantage of ISA reforms as soon as they come into force next year.

"We have long called for improved incentives to ISA saving," stated Richard Saunders, Chief Executive of the IMA. "Making the ISA a permanent feature of the savings landscape and removing the distinction between mini and maxi ISAs will make the ISA easier to understand and should encourage savers to take advantage of their attractive benefits."

"We would strongly urge all investors to use ISAs as building blocks for their savings. For those investors who have built up cash ISAs over the years it is worth considering making use of the new option to transfer some or all of this cash into stocks and shares ISAs," Saunders added.

The government received heavy criticism from the savings and investment industry after it decided to reduce the amount of money that savers could invest tax-free every year in 2003.

According to the Treasury, when ISAs were introduced in 1999, the Government committed to reviewing the regime after seven years, with a view to introducing any changes for 2009, at the end of the initial ten-year guarantee period.

The Treasury's internal review of the ISA regime concluded that ISAs have been successful in achieving their aims of encouraging saving more broadly across the population and ensuring that tax relief on savings was distributed more fairly. Following representations from stakeholders, the Economic Secretary announced a package of reforms alongside Pre-Budget Report 2006 designed to build on the success of the ISA regime.

During the consultation period, Treasury officials held discussions with over 160 stakeholders and received over 70 formal responses to consultation. In addition, the Economic Secretary met with representatives of the industry trade body, the PEP & ISA Managers' Association (now the Tax Incentivised Savings Association), and a cross section of providers from the asset management, fund management, retail banking and administration parts of the industry.

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