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HL’s Coles shares ISA wish list: six tweaks to peak ISA

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown:

“In the 23 years since the launch of the ISA, they have become the cornerstone of millions of portfolios, and home to an incredible £619.75 billion (in both cash and stocks and shares ISAs).

They’re a brilliant tax-saving solution for the vast majority of investors. They’re also a lifeline for many savers – particularly higher rate taxpayers and those who are hoping to build large cash balances.

Over the years they’ve evolved and improved too. Allowances have been dramatically increased, tax breaks improved, investment options widened, and there are now solutions for all kinds of savers and investors – including children, and young people looking for a hand onto the property ladder.

Of course, they’re not perfect. The expansion of the ISA range in recent years means they’re crying out for simplification. Streamlining would help people take advantage of ISAs, and avoid them being overwhelmed by too many options.

Our wish list

1) Streamline the range of ISAs

Over the years an array of ISAs has emerged, and while choice is positive, we need a balance between offering choice, and providing so many options that it becomes difficult to select the right one for your needs.

There are three products that can be rolled into existing ISAs while maintaining this balance: Child Trust Funds into Junior ISAs; Help to Buy ISAs into the Lifetime ISA; and Innovative Finance ISAs into Stocks and Shares ISAs.

In the case of IFISAs, one reason they’re separate is because you can’t have more than one ISA of each type per tax year. It means you can use the IFISA for a small peer-to-peer investment and get a separate stocks and shares ISA for the rest of your ISA allowance. If you rolled them in together, under the current rules you’d need to pick one or the other. This could be solved with the second proposal.

2) Allow people to subscribe to as many ISAs in a year as they like

There are no restrictions on the number of different pensions you can contribute to each year (as long as you stay within the annual allowance) so why restrict the number of ISAs? This would also iron out needless confusion – such as the fact you can’t currently put money in a Help to Buy ISA and a cash ISA in the same year.

3) Completely separate the ISA allowances

At the moment, you can put up to £20,000 into ISAs this year, including £4,000 into a LISA. It means anyone taking advantage of the full LISA allowance would be left with £16,000 to save and invest in other types of ISA. The sharing of the LISA and ISA allowance is the single biggest cause of confusion among people considering a LISA, and creates administrative complexity for savers and providers. Separating the two allowances would solve this at a stroke.

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