The Tax Incentivised Savings Association (TISA) has welcomed Treasury proposals which will give investors affected by the failure of financial firms the opportunity to use compensation to top up their ISAs beyond the current subscription limits.
Under existing rules, any reinstatement of ISA investments previously held in failed firms still count towards the £10,680 annual limit, of which £5,340 can be cash.
However, under the Treasury's proposed changes, which will be made available for consultation in the New Year, investors who have lost their cash ISA will be permitted to reinstate up to the balance of their account at the time of the firm's failure in a new ISA.
Meanwhile, investors in stocks and shares ISA will be allowed to invest any compensation - or any similar payment - derived from assets held within their ISA in a stocks and shares ISA.
Malcolm Small, head of policy at TISA, said the proposal was a "common sense" move and would help to improve consumer confidence.
He added: "Anything which encourages ISA saving and makes people more secure is welcome. We all hope that the facility never has to be used, but anything which improves confidence has to be welcomed."
An exception has been made for cases where Lehman Brothers was the sole counterparty of an ISA product, where investors will be allowed to reinstate their balance, regardless of whether they have received any compensation.
In a statement to MPs yesterday, financial secretary Mark Hoban said: "The changes we intend to make will provide a principles-based approach which, together with the Financial Services Compensation Scheme's deposit guarantee scheme and other compensation arrangements, will enable investors whose ISAs are affected by the failure or default of a financial firm to continue to benefit from tax-advantaged savings."
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