Does anybody actually understand Isas anymore? – Harvey Jones

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I pity the poor IFA who has to get his head around the increasingly complex panoply of tax-free Isa choices.

The simple choice of whether to go for cash or stocks and shares is no more, with another four options now on the table.

The latest is the Lifetime Isa, or Lisa, which aims to give savers aged between 18 and 39 a financial incentive to save for their first ever home.

This should have been blisteringly popular, with a 25% government-funded bonus worth up to £1,000 a year on offer.

Somebody who signed up on their 18th birthday and made maximum annual contributions until age 50 would pocket £32,000 of free money from the government. What’s not to like?

 

Confusion

Yet a mere handful of companies offered a Lifetime Isa at launch, notably Hargreaves Lansdown, The Share Centre and Nutmeg. The big banks don’t seem to be bothering at all.

That is quite a snub, and the scheme’s complexity is partly to blame. It is primarily designed to help first-time buyers but things quickly become complicated, ruling out savers who have ever owned a property before, even if it was a part share of an inherited property inside or outside the UK.

Also, that property cannot cost more than £250,000, or £450,000 in London.

 

Charging trap

The Lifetime Isa also has that notorious 25% exit penalty if savers take the money for any other reason than buying a first property before age 60.

This is particularly ironic with financial regulators pursuing an aggressive campaign against hidden investment industry fees and charges.

A further source of confusion is the crossover with the ongoing Help to Buy Isa, which was also designed to help first-time buyers.

IFAs now have to look at whether Help to Buy Isa savers should switch to the new scheme. The Innovative Isa and Junior Isa only add to the overall confusion.

 

Pension peril

As if that wasn’t enough, advisers also have to decide whether it is better to put client money into a Lifetime Isa or a pension fund.

The general rule seems to be that if offered a workplace pension with employer top-up, that is the superior option.

Yet with pension rules also changing all the time, and talk of Chancellor Philip Hammond cutting tax relief in his autumn budget, the choice could get more complicated.

 

Most advisers will be poring over the main options and working out which will most benefit their clients, but does it have to be this confusing?

The same muddled short-termist political tinkering that has baffled pension savers is now wreaking similar damage on Isas.

A similar blight has afflicted bank deposits, following the introduction of the personal savings allowance, and the there’s the dividend allowance. It’s is enough to put people off saving altogether.

 

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