Investment experts have a long wishlist for this year’s Autumn Statement, including more details on peer-to-peer ISAs, changes to investment bond taxation and a boost to Junior ISA contributions.
When George Osborne takes to the despatch box this Wednesday for the Autumn Statement, investment pros are hoping for more clarity on the previously-announced Innovative Finance ISA.
More detail is expected on new ISA system, which will cover loans arranged through peer-to-peer platforms, says Tilney Bestinvet managing director Jason Hollands.
In particular, Hollands expects the government to give further details on the size of the tax allowance of the new ISA category.
He says: “For some time the government has promised to allow peer-to-peer activity lending in ISAs but that has been delayed.
“They’ve announced they’d have a separate Isa, the Innovative Finance ISA, that should allow peer-to-peer lending activity within in, but we don’t know anything about the size of that allowance in particular, so you’d logically expect that to be announced in the Autumn Statement because it is the time when they set next year’s ISA allowance.”
Currently no tax is deducted, however, interest from P2P loans will fall within the new Personal Savings Allowance from April 2016, which stands at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
Among the other changes experts are expecting is a possible amendment to the rules from HMRC on investment bond withdrawals to avoid investors incurring excessive taxation.
This suggestion follows a court case against HMRC, which saw a Zurich Life customer incurring a large tax liability after withdrawing money from an investment bond.
The investment bond was made up of a series of single-life insurance policies. Current tax rules allow an income of 5 per cent of the original investment into a bond to be taken tax-free each year.
In 2013, investor Joost Lobler incurred a tax bill of $560,000 (£372,000) on a $70,000 (£46,000) life insurance policy gain when making a partial withdrawal from the policies without surrendering any of them, resulting in him paying income tax on the full amount of money withdrawn.
Old Mutual Wealth financial planning expert Rachel Griffin says following the court case, a change in HMRC rules would bring more clarity.
She says: “A change in HMRC rules to allow providers to unwind cases where the customer has clearly made a mistake will be welcome news and prevent many customers from being inadvertently disadvantaged.”
Lowcock says such a change would be “a victory of common sense over complexity”.
He says: “The HMRC have recognised that some products are taxed in a complicated manor making it hard for typical investors to fully appreciate the implications of the decision they have made.
“By allowing those who have genuinely made the wrong decision to correct this it puts the consumer central to getting the best return on the investment and will help the financial services industry strengthen its reputation for supporting investors.”
Other changes investment experts are rooting for include an increase in the amount that non-earners can contribute to pensions, to bring it in line with the Junior ISA allowance.
Gareth James, head of technical resources at AJ Bell, thinks the amount should be increased to £4,080 from £3,600 as many parents and grandparents use the allowance to save for children.
“Aligning this with the JISA allowance to create a single, consistent children’s saving allowance across both JISAs and pensions would make it easier for parents and grandparents to understand how much they can invest,” says James.
What else to look for:
Information from the Treasury on the secondary annuity market, allowing those with an annuity to access the pension freedoms. The Treasury and the FCA are working towards an April 2017 launch, after announcing a delay earlier this year.
More details on the Help 2 Buy ISA, which launches on 1st December. Osborne may release more information of how many cash ISA providers will offer the H2B ISA.
The Investment Association is also in talks with the Treasury on a potential tax break for bonds. The IA wants the tax exemption on savings interest (£1,000 for regular tax payers and £500 for higher rate tax payers) extended to bonds, which are currently taxed at 20 per cent.
Removal of the lifetime allowance. Hollands says he would like to see the removal of the “punitive” £1m cap for 2016/17, which he thinks penalises those pension funds that have seen good investment growth, as well as those individuals that put more in their pot.