Todays Autumn Statement (22 November) has confirmed that Long-Term Asset Funds (LTAFs) and Property Authorised Investment Funds (PAIFs) will be eligible for inclusion in the Innovative Finance ISA from April next year, while some fractional shares will also be included as eligible ISA investments.
A raft of ISA changes were published in the document accompanying the statement, including: allowing multiple subscriptions to ISAs of the same type every year; allowing partial transfers between providers; removing the requirement to reapply annually for existing ISAs, and ‘harmonising’ the account opening age for any adult ISA to 18.
Annual limits on ISAs (£20,000), JISAs (£9,000) and LISAs (£4,000 excluding government bonus) were frozen at current levels for the 2024/25 tax year.
Myron Jobson, senior personal finance analyst at Interactive Investor, called Chancellor Hunt’s address to the House of Commons an “Autumn Statement to remember for ISA investors”.
“The government intends to permit certain fractional shares contracts as eligible ISA investments and will engage with stakeholders on implementation, which is a significant development for retail investors who might be saving less than £100 a month, as it been difficult for them to invest directly in shares while also building a properly diversified portfolio,” he said. “There are around two dozen shares in the FTSE 100 with a price of over £20, while AstraZeneca shares cost around £90 each.
“However, investors will still need to contend with cuts to capital gains and dividends tax allowances, which are still on course to be halved to £3,000 and £1,000, respectively, in the new tax year. This reinforces the importance of making the most of this year’s ISA allowance to protect your investment returns from tax in the future.”
Oli Creasey, property research analyst at Quilter Cheviot, said the inclusion of property funds – in particular those which are not daily-dealing – in the Innovative Finance ISA, is “impactful for several reasons”.
“First, it opens up a new route that would encourage retail investors to be able to (and therefore willing to consider) investment in property. That’s good news for the relatively new LTAF category, which has not yet gained much traction as a vehicle for property investment, though could be a key beneficiary of this,” he explained.
“The other live issue in the open-ended property fund sector is a long-running consultation process where the FCA is considering whether to require daily-dealt property funds to put in place a redemption delay of either three or six months. This was aimed at reducing liquidity issues in these funds – something that came to a head again recently with several funds being forced to suspend in October 2023.
“However, no decision has yet been made by the FCA, in part we are told because putting such a delay in place would make those funds ineligible to be held in an ISA (where regular trading is a requirement) – and many of the funds are already wrapped up in retail investor ISAs already, making their removal a real headache.”
He added that making a non-daily property fund ISA-eligible “opens up a pathway where a relatively simple conversion can take place” without funds having to be sold due to ineligibility.
“We imagine that this may then bring forward the final decision from the FCA, which has been a cloud hanging over the open-ended property sector for several years now.”
However, Tom Selby, head of retirement policy at AJ Bell, warns that while LTAFs work for institutional investors, it is “hard to see the case for making them available to ISA customers”.
““While Long-Term Asset Funds (LTAFs) may work for institutional pension investors, it is hard to see the case for making them available to ISA customers.
“We are talking here about an illiquid investment potentially being promoted in a world where people choose the product specifically because of the flexibility it provides,” he warned.
“While any investment should, of course, ideally be long-term, life often gets in the way of people’s best-laid plans. Any investor considering investing in illiquid assets such as LTAFs through their ISA needs to fully understand what they are getting into and the associated risks.”
He added that the Chancellor only “tinkered at the edges” when it came to ISA simplification, calling the fact UK savers have a choice of six types of ISA “ridiculous”, with “different rules and allowances further clouding the picture”.
“Although ISAs have become a recognisable and trusted savings vehicle, complexity and lack of understanding remains one of the biggest barriers to investing,” he said. “Today Jeremy Hunt had an opportunity to tackle this complexity head-on in his second Autumn Statement. Sadly, he appears to have bottled it. It is also disappointing the ISA allowances will remain frozen for another year – although at least the wrong-headed ‘GB ISA’ proposal many have been pushing appears to have been consigned to the policy dustbin.
“Allowing people to pay money into more than one ISA of each type in a tax year is a sensible move, making it easier for investors to try out different stocks and shares ISA providers, while cash savers could open multiple new ISAs as new deals become available.
“However, this is hardly an earth-shattering change in its own right. It should instead have been the foundation upon which more fundamental simplification was built.”
