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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Could the new Government shift the emphasis away from ISAs and back towards pensions?

With the future of the UK post-Brexit continuing to dominate the political landscape, the Autumn Statement provides the Government with an opportunity to set out its domestic reform agenda.

So what should savers and investors look out for when Philip Hammond delivers his first big speech as Chancellor on 23 November?

The Lifetime ISA

A number of investment platform providers, including AJ Bell Youinvest, will be ready to offer the Lifetime ISA if it launches in April 2017.

However, the product also has powerful enemies - most notably Baroness Ros Altmann in the House of Lords – who argue it risks undermining automatic enrolment. Furthermore, several major providers have said they won’t be ready to launch in April next year.

Given this backdrop, the Treasury could be tempted to push back rollout of the reforms by 12 months to give the market breathing space to develop propositions.

Pension tax relief and ISA allowances

Since 2010 savings policy has closed the incentives gap between pensions and ISAs, and momentum was certainly with ISAs under the previous Government.

It will be interesting to see whether the new administration decides to continue this trajectory in the Autumn Statement or start tipping the balance back in favour of pensions.

If it favours ISAs, now would be the perfect time to take stock and unwind the slightly tangled cord of ISA variations that now exist. The Chancellor could, for instance, scrap all six of the current ISA brands, including the Lifetime ISA and move forward with one ISA product, with a help-to-buy Government bonus on the first £4,000 of savings for under 40 year olds.

The fact remains that pensions still cost the Government more than ISAs and so it would be no surprise to see pension tax allowances further pared back.

Options include cutting the lifetime allowance further or reducing the amount people can pay into pensions each year. Hammond could even do away with the 25% tax free lump sum people are entitled to when they retire, although this would be hugely unpopular with core Conservative voters.

Venture Capital Trust/Enterprise Investment Scheme allowances

Investors are already encouraged to invest in small businesses through VCT and EIS schemes. Investors in VCTs currently receive income tax relief of up to 30% on investments up to £200,000 a year, while dividends are tax-free and there is no tax on capital gains.

EIS schemes also offer tax relief of up to 30% on investments of up to £1m in qualifying start-up ventures. Both require investments to be held for minimum periods to qualify for the benefits.

The Government could well be tempted to boost the tax incentives associated with one or both of these schemes in order to prop up the economy.


Tom Selby

AJ Bell Analyst

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