I am probably in the minority in saying this, but one of the things I enjoy most about foreign holidays is the ability to tackle a driving experience that is a little different from that in the UK.
The biggest concern for many is the need to thoroughly research local driving laws to avoid being caught out by some wrinkle in the regulations. These can range from the mundane, like turning right on a red light at many intersections in the US, to the bizarre, such as not being allowed to travel topless in Thailand, even in the comfort of your own car.
Looking up these sort of wrinkles can be a chore but it is something most travellers accept as being a small price to pay when it comes to enjoying a holiday.
I find it less likely that individuals – even advisers – will expect they need to look into the fine detail of the rules of financial products that are promoted as simple, such as the Lifetime Isa. There might be an acceptance of this when it comes to complex trusts, or even some pensions, but Isas and Lisas are simple, right?
Perhaps not as simple as first imagined. At the most basic level, the Lisa has introduced complexity with its rules around bonus claims and tax charges on withdrawals.
The Lisa bonuses and tax charges bring with them challenges, including those around transfers from other types of Isa
The Help to Buy Isa had a bonus element but, because this was only paid at a single point in time – the point of house purchase – it kept things relatively straightforward.
The Lisa bonuses and tax charges bring with them challenges, including those around transfers from other types of Isa. These are treated as payments that qualify for a bonus, and so are limited to a maximum of £4,000 in a tax year. The combination of this relatively low allowance with the fact that partial transfers of Isas are not permitted in some circumstances has already caused some issues.
While these issues are frustrating, there is a clear logic in restricting payments into a Lisa to only £4,000 – a limit has to be somewhere. And the block on partial transfers also makes some sense because it simplifies HM Revenue & Customs’ job of checking that overall subscription limits have not been breached (though it is worth challenging the legitimacy of making a product more complex because it is not feasible for improvements to be made to HMRC’s systems).
Lack of logic
There are greater issues with wrinkles in the Lisa rules, which do not appear to be based on any logic and which have already caught out the unwary. Two examples that stand out relate to the opening of a Lisa.
Firstly, although Lisa subscriptions are permitted right up until a person reaches 50, if an application is submitted before someone hits 40 but they do not make a subscription before their 40th birthday, the Lisa must be closed.
In a similar vein, although Lisas are not opened up on a tax-year-specific basis, if an application for a Lisa is submitted during a tax year but a subscription is not paid in that tax year, the Lisa must be closed and the individual has to reapply from scratch the following tax year.
The argument can be made in both circumstances that individuals simply need to make a small payment to avoid falling foul of the rules. But life can get in the way in the real world, and people do not always manage to get around to these things.
More importantly, these are not rules investors will expect to exist. Once you have applied for a product and your application has been accepted, it is open, right? Many will not even think to check.
When designing new investment products, legislators and regulators must put themselves in the position of the inexperienced investor and remove the wrinkles that will catch out the unwary.
Gareth James is head of platform technical at AJ Bell