Autumn Statement 2023: ISA Changes Could be Coming

The Autumn Statement will take place on 22nd November 2023 and reports suggest that within it, the Chancellor will announce reforms aimed at broadening the appeal of ISAs, simplifying them and encouraging investors to utilise them to invest into UK companies.

It has long been suggested that the ISA market has become too complex, with there now five products available (Cash ISA, Stocks and Shares ISA, Innovative Finance ISA (IFISA), Lifetime ISA and Junior ISA) and a number of different rules and allowances.

Nonetheless, considered one of the most generous tax incentives available to savers and investors in the UK, ISAs are still, in general, hugely popular. According to the most recent HMRC data, around 11.8 million Adult ISA accounts were subscribed to in 2021/22, with subscriptions totalling circa £66.9 billion.

This is a fall from the previous year however. In 2020/21, £72.2 million was subscribed across 12.2 million accounts. The decrease was driven by a 920,000 drop in the number of Cash ISA subscriptions, likely due to the rock-bottom interest rates on offer at that time.

The reported new reforms look to increase ISA up-take once again, with a major focus being put on the product helping to bolster the UK economy through investment into British business.

What changes could be coming to the ISA market?

The Treasury have said they are “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”, and experts have been eager to suggest some changes that would be welcomed, whilst a number of “insider sources” have also revealed the plans that are under discussion within the Government. 

Here are a few potential changes that could come to the ISA market after the Autumn Statement:

1. Merging the Cash ISA and Stocks and Shares ISA: In a bid to simplify the ISA market’s offerings, merging the two most popular ISA products has been suggested. This would eliminate the need for separate accounts to hold cash and stocks and shares, but this could prove to have complications of its own, as the two products have different purposes and risk profiles and therefore require different communications.

2. Introducing a new ISA for investing into UK companies: Though it may seem counterproductive to introduce a new ISA into the mix when looking to simplify the market, a separate product with its own allowance for the purpose of investing into British businesses has been proposed.

3. Increasing the ISA allowance: The annual ISA allowance has been sat at £20,000 since 2017/18, and providing a boost to this could go a long way in encouraging saving and investment – for experienced investors in particular – as it bolsters the tax-efficient benefits.

4. Allowing more than one of the same type of ISA to be opened per tax year: At present, savers and investors are limited to opening and subscribing to just one of each ISA product per tax year. The Chancellor is reportedly considering a change to this in order to stop Cash ISA savers being stuck with lower rates when better deals become available. Instead, they would be able to open a new account with higher rates and transfer their funds without impacting their ISA allowance, even if they’ve already opened a Cash ISA within that tax year.

ISA considerations ahead of the Autumn Statement

A number of these proposed changes would undoubtedly prove beneficial to ISA investors. In particular, an increase in the ISA allowance and the ability to open more than one of each product per tax year would make the already tax-efficient product even more attractive.

Keep in mind that any changes announced in the Autumn Statement will most likely not come into effect until the beginning of the 2024/25 tax year on 6th April 2024, meaning you should still be considering how to best utilise any remaining allowance from this year under the current rules.

For experienced investors with the appropriate appetite for risk, the IFISA remains an important consideration for targeting often inflation-beating returns. Even as Cash ISA rates rise – with the best rate available on an instant-access account at the time of writing being 5.08% – they continue to fail to keep pace with inflation (6.7% as of September).

Meanwhile, some property-backed IFISAs are targeting returns in excess of 9%, making them an attractive addition to an investor’s portfolio provided they’re willing and able to take on the higher level of risk. 

But remember: a diversified ISA portfolio is the most effective way of balancing risk and meeting a range of saving and investment goals. Spreading your allowance across ISA products is key, and if you’ve already used your 2023/24 allowance in full, an ISA transfer could prove useful.

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