The Isa landscape needs to be simplified not complicated with another new product, industry experts say in response to Neil Woodford’s suggestion this week that Government create a ‘patient capital’ tax wrapper, potentially in the form of an Isa.
The star fund manager told a House of Lords science and technology committee this week that such a product could incentivise investors to take a longer-term approach to investments, therefore providing scale-up capital for some of the UK’s leading science research.
Woodford’s proposal is supported by the Association of Investment Companies who have recommended the creation of a patient capital Isa in its response to the Government’s patient capital review, which is part of its industrial strategy.
However, Tilney Group managing director Jason Hollands is emphatically against the idea.
“Please Lord, no! The last think we need is yet another Isa to add to the sprawling and confusing suite of Isas that have emerged in recent years,” Hollands says.
“A much better solution when we leave the EU and are rid of its draconian State Aid directives, would be to review the EIS, Seed EIS and VCT rules to make sure they are flexible and match-fit to provide the optimal level of support for UK enterprise.”
Alongside basic cash and stocks and shares Isas, investors can also choose whether they want Help to Buy, Flexible, Innovative Finance or Junior Isas, alongside Inheritance Isas, not to mention the Lifetime Isa, which will launch on April 6.
Chelsea Financial Services managing director Darius McDermott agrees that the Isa landscape is already confused.
“Isas are meant to be a simple product yet there are already too many types of Isa. I wouldn’t want to see another Isa product.”
McDermott adds VCTs and EIS already provide substantial tax breaks to encourage investors to take risk on start-up companies that have the potential to fail.
Chief executive of EIS platform Kuber Ventures Dermott Campbell agrees, arguing that EIS and SEIS incentives are already successful at attracting capital to start-up companies.
“Perhaps the answer is an extension of the EIS reliefs to introduce an additional tax relief, possibly sitting between EIS and SEIS for holding investments for more than seven years,” Campbell adds.
However, AIC chief executive Ian Sayers says a patient capital Isa would encourage retail investors to provide much-needed long-term capital for companies.
Sayers adds that the closed-ended structure of investment companies is an ideal vehicle for providing “stable long-term capital”.
The AIC has also called on the Government to strengthen its commitment to VCTs, which “have played a vital role in providing finance and support to SMEs”, according to Sayers.
Like Hollands, the AIC argues EU State Aid requirements have made the scheme “unnecessarily complex”.