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Jeremy Hunt is set to announce the biggest overhaul to UK individual savings accounts in almost a decade, as he looks to boost the use of the tax-free savings vehicles to provide capital for economic growth, according to senior officials.
The chancellor in his Autumn Statement on Wednesday will outline an Isa reform road map. This will include plans to alter rules around fractional shares and long-term asset funds, a type of open-ended fund invested in illiquid assets including private equity and real estate.
Hunt will also announce proposals to launch an online portal enabling savers to pay into multiple accounts each year, the officials said.
Savers can currently hold multiple Isa accounts, but only pay into one of each type of Isa each year. This limits their ability to move funds between providers without requesting a transfer to maintain tax-free status.
The Isa reforms are expected to taper the Treasury’s ambitions trailed this year, including plans for a dedicated UK equities allowance that have been put on hold until next year, the senior officials said.
The offer will set a path to settling a long-running dispute between young savers and HM Revenue & Customs over holding fractional shares within Isas, which could enable investment into expensive US stocks such as Apple, Amazon and Tesla.
The Treasury is seeking to simplify the Isa regime ahead of increasing the £20,000 threshold of the tax-free savings allowance. It has said that only 7 per cent of Isa subscribers made use of the current limit, while the average amount saved in 2021-22 was below £6,000.
Isa savers are exempt from paying tax on savings interest, dividends or capital gains on funds held in their Isa accounts. Withdrawals are also not subject to income tax.
AJ Bell, the brokerage platform, said the ability to pay into multiple accounts in a single year would open the door for further reforms.
“Ditching this rule could pave the way for more radical simplification of Isas” said Tom Selby, head of retirement policy at AJ Bell. He added that the current regime was “unwieldy and difficult for people to engage with”.
A wide-ranging consultation into Isa reforms is set to accompany proposals on Wednesday, according to two people familiar with the matter. In meetings this year between industry leaders and the Treasury, officials asked Isa providers what measures could be delivered by the spring Budget in April.
The spring Budget is likely to be the current government’s final fiscal event ahead of an election. Providers said this could include plans to pare back withdrawal penalties for the lifetime Isa, a savings product that offers a 25 per cent boost to savings up to £4,000 for first-time home buyers.
The Treasury declined to comment.