Many of us invest through Individual Savings Accounts (ISAs). And why wouldn’t you? An income free from income tax, capital gains free from capital gains tax, and no need whatsoever to maintain complex records of trades and income to present to the taxman.
And over the years, ISA wrappers have been improved upon by various governments. The £3,000 limit has been replaced by a more useful £20,000 allowance; ISAs can now contain AIM shares, and ISAs can now be inherited by spouses and civil partners.
Not content with all this, Jeremy Hunt’s Autumn Statement last week unveiled three more useful tweaks to the ISA regime
Improvement #1: multiple subscriptions
So from April next year, ISA savers and investors will be able to invest in multiple ISAs of the same type, each year. You can already have multiple ISAs of the same type, of course — but now you can split your £20,000 (or whatever) between multiple ISAs, of the same type, within a given tax year.
Why would you want to do this? One reason I’ve seen trotted out is that it would make it easier to move ISAs if you became dissatisfied with an ISA provider’s service.
A better reason, I think, is that it could enable investors to invest more cost-effectively, or with more choice of potential investments. Some ISA providers are better for funds, some are better for individual shares, and some are better for investment trusts. Someone wanting to split their allowance between funds and shares could easily decide that two different ISA providers made sense.
Improvement #2: partial transfers
The ability to switch ISAs between providers is useful, enabling savers and investors to reduce costs and increase choice. I’ve done it myself.
But hitherto, you’ve only been able to do it in respect of entire ISAs. No longer.
Again, from April, ISA savers and investors will be able to partially switch some of their ISA holdings to another provider. The ability to do this doesn’t make much sense in the case of cash ISAs, but for investors like you and I — with Stocks and Share ISAs — there’s a more obvious appeal.
Different ISA providers have different charging structures, and partial transfers allow ISA investors to tweak their asset allocations between ISA providers so as to optimise this, and thereby reduce charges.
You could hold funds in one ISA account, and shares in another, for instance. It’s not exactly a revolutionary advance, but I can see people taking advantage of it
Improvement #3: fractional shares
Want to buy shares in McDonald’s? Boeing? Tesla? Apple? Amazon? Or — gulp — Warren Buffett’s Berkshire Hathaway?
Plenty of people do — and in the case of tech shares, young people especially.
The trouble is that such shares are pricey. Apple shares are $190, as I write. McDonald’s, $282. Boeing, $218. Amazon, $149.
Berkshire Hathaway? Don’t even ask. Oh, alright then, seeing as you insist: a whopping $546,025. And no, that’s not a typo — although the company does also offer the more modestly-priced Class B shares.
The situation in the UK isn’t quite as bad. But it’s not perfect: as Paul Killik, founder of brokers Killik & Co points out, plenty of UK shares are pricey, too: over a quarter of the FTSE 100, for instance, have share prices greater than £20. AstraZeneca shares, as I write, are priced at £100.08.
Quite clearly, then, someone dripping money into an ISA every month intending to buy such shares faces an obvious problem: they won’t be able to invest all of it. They’ll be able to buy some whole shares, but then be left with some ‘change’, carried forward to the next month.
To get around this, some ISA providers offer ‘fractional shares’: fractions of shares, so as to use up all of an investor’s investable cash.
The trouble is, while it’s an obvious solution, HMRC say that they don’t allow it — so most ISA providers don’t offer fractional shares. Those that do offer it, say that their readings of the rules permit it.
It is, in short, a mess. But a mess no longer: from April, all ISA providers will be able to offer fractional shares, if they want to. The details have yet to be worked out, but consultations are ongoing.
All in all, sensible stuff. Everything an investor could ask for?
Not quite: the ISA limit has been stuck at £20,000 since the 2017-18 tax year. Inflation-adjusted, says an article in the Financial Times, the ISA limit should now be £25,760.
Ah well. There’s always the next Autumn Statement.