BSA calls for stocks and shares to cash ISA transfers

Stocks and shares to cash ISA transfers should be permitted, says the Building Societies Association (BSA), in its Budget submission to HM Treasury.

In April, the Government will be introducing an option for cash ISA holders to switch to a stocks and shares ISA. But switching the other way - from a stocks and shares ISA to cash - will not be permitted.

Building societies see big problems with their policy of one-way-only switching and urge the Government to reconsider its approach. The issues outlined in the BSA’s Budget submission include:

Errors of judgement could not be rectified within the ISA wrapper People will inevitably make mistakes about transferring from cash to equities. These may be due to errors of judgment by the ISA holder - or, in some instances, poor advice. Such errors cannot be reversed without losing ISA tax exemptions.

Lifestyling of products is difficult under one-way rules Allowing two-way transfers would make ‘lifestyling’ of portfolios much easier. If transfers from stocks and shares to cash ISAs were allowed, savers could diversify their assets and benefit from the lower volatility offered by cash holdings. People nearing retirement, who wish to change their asset allocation to match more closely their liabilities, would be able to convert some of their equity holdings to cash without losing the benefit of the tax exemption available within an ISA wrapper.

Allowing two-way transfers would also assist those on lower incomes

Stocks and shares ISAs are of benefit only to higher rate taxpayers:

there is no tax benefit to those on lower incomes holding equities inside - as opposed to outside - an ISA. Cash ISAs give tax breaks to all taxpayers, including those on lower incomes.

Future reviews of ISA limits

Whilst we welcome the increase in the cash ISA limit to £3,600 from April, we consider there is a strong case for the cash ISA limit brought into line with that of the stocks and shares ISA and we would like to see an early commitment to this by the Government. The BSA considers this limit should be subject to regular future review, to prevent erosion by inflation.

Commenting on ISAs, Adrian Coles, Director-General of the Building Societies Association, said: “We urge the Government to look at our concerns and allow transfers from stocks and shares to cash ISAs. The one-way-only transfer means consumers cannot rectify errors of bad judgment or advice and still retain their tax exemption. Also, as people near retirement, they increasingly seek to reduce the risk to which their retirement savings are exposed. It makes sense for them to increase the balance of cash in their portfolios so as to more closely match their assets and liabilities - allowing transfers from stocks and shares ISAs to cash would facilitate this.

“Building societies are major providers ISAs, with 37% of the market share - double that of societies’ share of the market for retail savings accounts - so we hope the Government considers our points seriously and permits switching from stocks and shares to cash ISAs.”