View more on these topics

Amnesty or amnesia for Isa chaos?

The lessons learnt from the first year of Isas could push investors towards seeking financial advice the next time around.

The industry fears that many investors have unwittingly broken the Isa rules because they do not understand the difference between mini and maxi Isas.

Out of a survey of 1,000 adults, over half who had heard of Isas did not understand the basic structure and 37 per cent felt they were too complicated. In the survey, commissioned by Threadneedle Investments, 73 per cent said people should not invest in Isas without getting professional advice.

Threadneedle is calling on the Inland Revenue for an amnesty for investors breaking Isa rules with the stipulation that investors would have to unwind the second Isa and lose all tax benefits. Threadneedle is asking for leniency on investors who have not exceeded the £7,000 allowance. Investment companies fear the popularity of Isas could be jeopardised if investors get their fingers burnt.

The problem could affect many investors but it is difficult to estimate the scale yet. The Revenue is auditing application tapes sent by the providers which contain investors&#39 National Insurance numbers. This will establish what accounts will become void.

The Revenue expects this audit to be complete within a few weeks. It is compiling a review on how Isas work following a request from the Treasury but says an amnesty would not be its decision as it would be up to the ministers.

Investment managers cannot start planning the process of “unscrambling” accounts until they have the results of the audit and a decision is made about the call for an amnesty. HSBC head of IFA marketing Rob Fisher says: “Cle-arly, there will be a cost to investment houses if the amnesty is rejected.

“It depends on how quickly the Inland Revenue provides all the information. Our hands are tied until we have these details.”

Other investment companies are hoping the Government will take a sympathetic approach. They say the task of unscrambling accounts would be a “logistical nightmare”.

Threadneedle Investments communications director Richard Eats says there is no standard practice for unscrambling accounts so it will be an enormous task. “It is complicated because it is the first year of Isas but also because companies did not build their systems thinking they will have to unscramble investments,” he says.

A solution to curb the confusion next year is to simplify the product. Eats suggests just having a cash Isa up to £1,000 and a stocks and shares Isa up to £6,000 which are not connected. He says products that are more like Peps and Tessas would be sensible as investors understood those. He adds that there is a strong inclination in the industry towards getting rid of the insurance option altogether.

IFAs are playing a vital role in clearing the mist around Isas and explaining the rules to investors. They agree that many clients have been confused by them and clients have bought maxi Isas without realising they should be tied to the same company for the stocks and shares option. They say many people have a preconception that direct companies are a cheaper option. IFAs have also had to stop many of their clients from buying a second Isa and breaking the rules.

They say simplifying the product is one thing but educating clients is far more important.

Investors need to educate themselves about Isas if they are going to buy them without advice. But it would also help if IFAs were not kept in the dark about products their clients are buy-ing directly.

IFA Chase de Vere investment adviser Anna Bowes says: “It would be useful if there was a way of checking through National Insurance numbers to see if clients have bought a mini or maxi Isa.”

One of the bright spots for IFAs is the attention that investment companies are bringing to this problem.

However, not all IFAs agree that an amnesty is the best way forward. They say sometimes the best lessons are learnt the hard way. IFA Simpsons of Brighton partner Andrew Merricks says an amnesty would create problems in the future as people will think they can plead ignorance again. Losing out will teach investors not to make the same mistake again. It would help people to consider taking advice – as they have got into a mess by doing it themselves.

Merricks says this is not the fault of the providers. He says: “It is the Government&#39s fault for introducing the mini and the maxi Isa in the first place and not listening to the industry. An amnesty would just let the Government get away without getting egg on its face.”

Although it is hard to imagine the Treasury taking a sympathetic approach, it could be an option.A scandal about Isas, a product this Government introduced, would be the last thing it needs before the next general election.


Green Mortgage For Co-Operative

The Co-Operative Bank Mortgage is a CAT-standard flexible mortgage that addresses borrowers’ concern for the environment.This flexible ‘green’ mortgage marks Co-Operative Bank’s return to the mortgage market after a 10-year absence. It allows overpayments, underpayments and lump sum withdrawals to be made at any time. Interest is calculated daily and borrowers can also take payment […]

Principal appoint IFA support specialist

Principal Investment Management has announced the appointment of Dean Wakefield as Business Development Officer for the Midlands. Based in Bath, Wakefield&#39s role will be to provide support to those IFAs that sell Principal&#39s discretionary portfolio management services. IFAs now account for 80 percent of Principal&#39s new business. Previous to joining Principal, Wakefield was a intermediary […]

Personal pensions after stakeholder

What does the future hold for personal pensions in a stakeholder world?The individual personal pension rose out of the ashes of the section 226 contract back in July 1988. Until then, individual pensions were the domain of the self-employed and those in non-pensionable employment were not attracted to them in any large numbers.The reason why […]

Carry fund forward with a remortgage

From next April, you will no longer be able to take advantage of carry-forward as a handy way of mopping up unused pension tax relief. I want to show you how you can help clients scoop up a considerable sum of money, which can increase the size of their pension pots. “This sounds great, but […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm