We’re very keen on Isas at MoneyWeek. They are a fantastically flexible way to save and invest – very few countries around the world have anything as good. Changes to the rules over the last few years have made them even better: George Osborne has done a lot to sweep away needless complexity (such as the previous limits on holding cash in a stocks and shares Isa) and make the contribution limits more generous. New rules this April letting savers take out and put back cash during the tax year will make them even more flexible. However, there’s still some room for improvement. So here are three more restrictions the chancellor could think about sweeping away.
Let investors hold foreign currency
Existing rules say all currency holdings in an Isa must be in sterling. So if you want to invest in foreign shares, your cash has to be converted from sterling to the foreign currency whenever you buy and back to sterling when you sell. Dividends are converted to sterling when they’re received. Given that most stockbrokers charge hefty mark-ups over the market exchange rate when converting currency, this is an unpleasant extra cost. The existence of this restriction is hard to understand, since you can hold foreign currency in a self-invested personal pension (Sipp), and should be removed.
Allow contributions to more than one Isa
You can contribute to both a cash Isa and a stocks and shares Isa – and soon an innovative finance Isa as well – in the same year, subject to a combined maximum of £15,240. Keeping track of those combined contributions and making sure that nobody pays in too much doesn’t seem to be a problem (HMRC knows what you’ve paid in, since your Isas are linked to you National Insurance number). So why not let contributions be split between two stocks and shares Isas in the same year? Allowing this would make it easier to run different Isas for different purposes and top up both when needed, rather than juggling contributions between tax years.
Allow holdings to be transferred into Isas
It’s not possible to transfer shares from outside an Isa into one, except when the shares are acquired through a company “save as you earn” (SAYE) scheme (in which case they must be transferred within 90 days of being acquired). So if you want to move an existing holding into an Isa, you’d need to sell it and then buy it again within an Isa (often referred to as a “Bed and Isa” transaction) – which means that you need to pay dealing fees, plus any spread between the buying and selling price, and stamp duty on UK share transactions. Allowing investors to contribute shares, rather than cash, into an Isa – with the shares valued at market value and counting against this year’s contribution – would let them avoid an entirely unnecessary round of dealing costs.