ISA savers could soon face charges on cash held inside stocks-and-shares accounts – a proposal an industry expert has branded “absolutely bonkers” and akin to “essentially a tax”.
The plan would allow HMRC to levy a fee on uninvested cash sitting in ISAs, something that has never been applied before, despite ISAs being designed as tax-free investment shelters.
The criticism comes from AJ Bell chief executive Michael Summersgill who explained that the move would be “unprecedented” and could deter new investors from entering the market.
He warned that anyone opening a stocks-and-shares ISA must hold cash before purchasing shares or funds, meaning beginners would be hit first.
“One of the first experiences they will have in the Isa market is HMRC charging them on . . . interest on the tiny amount of cash that they have in there,” Mr Summersgill told The Financial Times.
He warned that speculation surrounding recent Budgets had triggered substantial pension withdrawals, with savers rushing to access their retirement funds amid fears the government might reduce the tax-free lump sum allowance.
“We have seen elevated withdrawals from pensions . . . as a result of concerns of the removal of tax-free cash,” he stated.
The AJ Bell boss revealed this uncertainty had resulted in “hundreds of millions of pounds of additional outflows from our business in both years,” referring to the periods around both the recent and previous Budgets.
He criticised the Treasury’s approach, stating that “uncertainty and complexity seem to be the theme of everything we’re getting from government.”
The government’s ISA overhaul will see the annual cash ISA allowance reduced from £20,000 to £12,000 for savers under 65, with the changes taking effect from April 2027.
According to Mr Summersgill, HMRC is planning to introduce a charge on small cash balances held within stocks-and-shares ISAs to prevent people from sidestepping the lower limit.
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HMRC is planning to introduce a charge on small cash balances held within stocks-and-shares ISAs
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GETTYThe overall annual ISA allowance will remain at £20,000, though the portion available for cash savings will be restricted for younger savers.
Data from 2023/24 shows the average subscription per account stood at just under £7,000, suggesting many savers currently deposit well below the existing limits.
AJ Bell’s main investment platform saw assets under administration climb to a record £103.3billion over the year to September, representing a 20 per cent increase compared with the previous twelve months.
Despite the strong growth in assets, the company reported that gross inflows through financial advisers reached £7bn, though the amount withdrawn also rose.
Shares in the investment platform dropped 6.6 per cent to £4.88 during morning trading in London, although the stock remains up 8.6 per cent since January.
Mr Summersgill’s concerns echo those of St James’s Place chief executive Mark FitzPatrick, who warned earlier this week that Budget speculation had damaged people’s pensions.