It’s time Treasury sorted out the ISA ‘mess’

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Tax incentives to encourage investing have been used by successive governments for years.

The Individual Savings Account or ISA is currently the most popular, allowing the income and gains on investments to grow free of both UK income and capital gains (apart from the 10 per cent tax credit on dividends from UK companies which is not repayable).

As we are about to close one tax year – allowing £10,860 to be sheltered in an ISA, up from £10,200 – and enter a new one from April 6 with the prospect of £11,280 being saved, the Treasury should really sort out the ISA mess it has created.

It is like untangling a monetary octopus.

It’s time the ISA rules placed everyone on the same footing.

When ISAs were first introduced in 1999, anyone aged 18 years upwards was eligible.

Two years later, the age limit was lowered by two years.

Yet 16 and 17-year-olds were only allowed to invest in a deposit or cash ISA and not have the opportunity to see real growth through a stock market related investment.

The explanation was that the latter would mean a contract which was unenforceable in England and Wales.

However, a day-old baby can have a Junior ISA where the money is placed on the stock market, as well as a deposit-based ISA up to a total of £3,600.

The weasel words of the Treasury would no doubt defend this inequality as saying that a parent was taking responsibility for the investment until the youngster became 16 when he or she could make financial decisions although not access the money until 18.

Again, with the Junior ISAs predecessor, the Child Trust Fund, equities can be invested as well as cash in the same pot.

The other large anomaly is to stop the free-flow between cash and stock market investments within an ISA.

Whilst the whole amount can go into the latter, only half can be in the former.

At a later date the cash element – perhaps from an earlier tax year – can be switched into stocks and shares but not the other way around.