A hidden agenda was behind the Government's decision to up the amount of cash that can be invested in ISAs, according to IFA service firm AWD Chase De Vere.
The company says while on the surface the change seems good news, the Government has also made it so investors can switch from cash into stocks, but not vice versa.
Anna Bowes says the move “smacks of a ploy to actually reduce cash holdings in ISAs, as they have a vested interest in seeing this happen”.
Further to Gordon Brown’s final Budget as Chancellor earlier in the year, last week the Economic Secretary to the Treasury, Kitty Ussher, laid down the regulations for the change to ISAs that will take effect from 6 April next year.
The new regulations included allowing investors to put up to 20% more cash into ISAs, extending the limit from £3,000 to £3,600.
But Bowes says the Government is running the risk of seeming duplicitous because of other changes.
“There is really no clear message with these new rules,” she says.
“On one hand, the Government appears to be really generous by increasing the popular cash ISA allowance by 20%, however, by allowing people to switch out of their cash ISAs into stocks and shares, but not back again smacks of a ploy to actually reduce overall cash holdings in ISAs, as they have a vested interest in seeing this happen.”
AWD points out if investors had put away £3,000 each year since ISAs were introduced, plus rolled over their £9,000 TESSA allowance, they could have in excess of £45,000 in a tax-free cash account.
For a basic rate taxpayer, assuming a rate of 6% gross, that’s a saving of £540 a year; for higher rate tax payers the saving is £1,180 a year.
Bowes also warns against transferring cash out of ISAs into stocks and shares.
“The danger here is that people are far more likely to take advantage when stockmarkets are at a high, rather than when things have taken a tumble,” she says.
“Basically, even though this option has been introduced, we feel that for the majority of investors it would be a terrible idea to utilise it – however if they feel they have built up too much cash over the years, it would be wise to seek independent financial advice before making the switch.”
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