Autumn Statement introduces new ISA flexibility – how the reforms could help you

Savers will be able to back multiple types of the same ISA and include fractional shares. We explain the Autumn Statement ISA reforms.

Blocks spelling out ISA
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ISA savers and investors are set to get more flexibility over the types of shares and products they can back when using the tax wrapper as part of reforms unveiled in today’s Autumn Statement.

Chancellor Jeremy Hunt didn’t explicitly mention ISAs in his Autumn Statement speech but the Treasury document shows a range of changes.

While ISA and Junior ISA allowances have remained frozen at £20,000 and £9,000 respectively and the Lifetime ISA annual limit has stayed at £4,000, savers may benefit from new ways to use the tax-free wrapper.

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Here are the main ISA reforms.

Reforming the ISA tax wrapper

Currently, savers and investors can contribute to one of each of a cash and stocks and shares ISA each tax year.

That can limit your choice if you open one product and then find a better deal elsewhere such as a cheaper investment platform.

Under current rules, you would need to move all your money and close the account in order to do a ISA transfer, if the provider allows it.

But the Treasury has said it will allow multiple ISA subscriptions of the same type and partial rather than full transfers between providers from April 2024.

Long term asset funds and open-ended property funds with extended notice periods will also be allowed into Innovative Finance ISA from the next tax year.

“Allowing individuals to save in more than one ISA of the same type per year removes one complexity from the ISA regime and will appeal to a wide group of savers and investors,” says Steven Cameron, pensions director at Aegon.

“It may also encourage employers to offer ISAs through the workplace, perhaps deducting regular contributions from payroll, without fearing employees with an existing ISA might inadvertently break the existing rules and end up contributing to more than one.”

Cameron says the change is most likely to appeal to those who want to find the most competitive cash ISA rate to use up the remainder of their annual allowance but warns that it does come with the risk that some individuals will fail to self-certify that they remain within the £20,000 annual limit.

Tom Selby, head of retirement policy at AJ Bell, says allowing people to pay money into more than one ISA of each type in a tax year is a "sensible move", making it easier for investors to try out different stocks and shares ISA providers, while cash savers could open multiple new ISAs as new deals become available.

“However, this is hardly an earth-shattering change in its own right. It should instead have been the foundation upon which more fundamental simplification was built," he says.

“AJ Bell has long called for both pensions and ISAs to be made as simple as possible, in the latter’s case by combining the key features of the current landscape in a single ‘One ISA’ product. This is a reform both consumers and advisers support, and we will continue to argue for sensible simplification across financial services.”

The Chancellor has also aligned the age that savers can apply for an adult cash or stocks and shares ISA to18.

Rachael Griffin, tax and financial planning expert at Quilter, says this restricts 16 and 17 years old from applying for a cash ISA but they can still benefit from Junior ISAs.

Fractional shares

HMRC has been in dispute with investment platforms that provide fractional shares, claiming they do not full under ISA regulations.

 Fractional shares have become popular among influencers and are used on newer trading platforms and apps such as Freetrade, eToro and InvestEngine.

Rather than paying the full price for a share, a fractional share lets investors buy part of a stock rather than the full amount.

Supporters argue that it lowers the barriers for entry but HMRC warned earlier this year that ISA Regulations only refer to whole shares and not parts or derivatives. 

 The Treasury has stepped in today to announce that government intends to permit certain fractional shares contracts as eligible ISA investments and will engage with stakeholders on implementation.

Adam Dodds, chief executive of Freetrade, which offers fractional shares in US stocks, described it as a victory for ordinary investors.

 “Fractional shares enable customers with small and large portfolios to diversify their holdings much more easily than if they were only limited to holding whole shares,” he says.

 “We’re pleased that this government has stood up for ordinary investors and acknowledged that there is a need to update decades’ old ISA Regulations that have simply not evolved with the market."

Andrew Prosser, head of investments at InvestEngine, says fractional shares have made investing more accessible at all levels and are helping more people to improve their long-term financial security.

 “The chancellor’s decision to confirm their eligibility as ISA investments is welcome and will ensure that investing remains accessible for millions of people in the UK,” he says.

 “The Autumn Statement also noted that eligibility will be permitted for ‘certain’ fractional shares contracts, a point we now need clarification on.

 “We look forward to the Treasury’s engagement with the industry on this matter so that businesses and investors can get the certainty they need.”

Marc Shoffman

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.