Taxation – Scepticism over ISA tax draft

Tax regulations on individual savings accounts met with a sceptical reception from the personal finance industry this week.

The industry’s verdict was that the regulations were solid, but failed to strike a balance between strong regulation and flexibility.

The first draft of regulations for ISAs, which are due to replace Peps and Tessas next spring, was issued last week.

It included plans to enable savers to buy ISAs over the phone or via the Internet, as well as an outline of how ISA providers are to be taxed.

John Whiting, head of personal tax at Price Waterhouse, said: ‘You have to tread a thin line between making the product affordable and making it well-regulated.

‘In the wake of the pensions mis-selling scandal, the government is afraid of an “ISA mis-selling” scandal, and has issued tight regulations. This needs to be an affordable scheme as well as a safe one, and a huge regulatory burden will result in higher charges.’

Others believed the government’s Cost Easy Access Terms standard, which made it easier to base the equity part of ISAs on higher-risk tracker funds rather than safer passively managed funds, negates the cautious nature of the tax regulations.

Roger Cornick, chairman of future ISA provider Perpetual, said: ‘The government has taken great care in these regulations to increase the flexibility and accessibility of ISAs, but at the same time it has made them riskier.’

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