Isa inflows surge under new limit

Gross inflows into stocks and shares Isas have averaged over £400m a month since the Isa allowance was raised to £10,200 for over-50s in October last year, figures from the Investment Management Association (IMA) show.

Between October 2009 and August 2010 net Isa sales totalled £4.66 billion. According to IMA research, this number would be greater if the allowance were raised even more.

Net sales of Isas in October 2009 were the highest for any month since the savings accounts were introduced in 1999. (article continues below)

In April, when the increased allowance was extended to the under-50s, net sales were at their highest since 2001.

The research follows last week’s warning that the government may consider reducing tax incentives on Isas in its comprehensive spending review later this month.

Andy Love, a member of the Treas­ury select committee, said last week that the coalition government may target Isas as part of its package of cuts.

Speaking at a fringe event during the Labour party conference, Love said: “We have seen the coalition cancel Child Trust Funds (CTFs) and the Savings Gateway, which were two of the primary incentives that were offered under the previous government.

“There is also a debate over Isas, and while the coalition is saying they are supportive of Isa structures, there have been a lot of rumours that [Isas] may be subject to the spending review.”

Responding to Love, the Treasury pointed to its June 2010 budget, which stated that it will index link the annual Isa subscription limit from 2011-12.

According to the IMA research, based on a survey of 2,100 investors, 36% said they would invest more if long-term savings remained consistent and 47% said they would invest more if the limit was raised.

Meanwhile, 44% said they would put more money in Isas if there was a lifetime tax-free allowance.

After its decision to scrap CTFs, it is understood the Treasury is consulting over plans to launch “junior Isas” for children. These would allow tax-free investment in cash or stocks and shares up to an annual limit. The Isa investments would be owned by the child but locked in until the child reached 18. Unlike CTFs, however, there would be no government contribution payments.