Government confirms intent to reform and simplify Isas

The government has confirmed that it intends to implement a series of reforms to simplify the Isa, as first announced by Ed Balls, economic secretary to the Treasury, last month.

In a paper accompanying the pre-Budget report, the government lays out proposals to remove the distinctions between mini and maxi Isas, merge Peps into Isas and allow the inclusion of Child Trust Funds into the Isa wrapper.*

The paper also confirms the government’s plan to allow individuals to transfer funds from cash Isas into stocks and shares Isas, without affecting their annual investment limit. However, there is no proposal to allow the transfer of assets the other way, from stocks and shares Isas into cash Isas.

Much to the disappointment of the funds industry, there is also no proposal to raise the maximum annual limit in Isas above the current 7,000 level.

This limit has not changed since Isas were first launched in 1999 and many had hoped it would be increased, at least in line with inflation.

Following confirmation of Balls’ (pictured) proposals, the paper from the treasury seeks views from the industry on the practical implications. It gives a January 31 deadline and intends to implement the package of reforms “as soon as possible and all at once”.

The only exception to this is the proposal to allow CTF accounts to rollover into Isas at maturity, for which there will be more time.

In terms of the merger of Peps into Isas, the document proposes that on a given date all Pep accounts would become stocks and shares Isas and, as such, Peps would cease to exist.

However, it states: “Providers that currently offer both Peps and stocks and shares Isas will not be required to amalgamate individual clients’ accounts into one account. This will be a matter for each provider.”

The paper further states that it is aware this reform will require system changes and it is keen to work with providers to make sure this is done in a cost-effective manner. Following feedback from the industry, it is expected that most of the reforms will take effect from the start of the new tax year, April 6, 2007.*Available at: www.hm-treasury. gov.uk.