Isa lifetime?

fted

Thanks to this great website, I’ve started to look at isas and savings in general.

I've read the guide on isas, but one thing isn't clear to me. If i invest 3000 at the beginning of a tax year in a isa. Is their a life time for this investment?

As in does the ISA have a life time after which I would need to reinvest the money? Or can I leave the money in the ISA for as long as I want and continue putting 3000 every year into isas tax free?

Thanks in advance

grumbler

Nobody can guarantee you that tax advantages of ISA will last forever. Situation is more or less clear now for up to 2010: Tax-free ISA limits extended.
Yearly allowance can change, but you don't need to reinvest money until then.

dunstonh

As grumbler says, no-one can tell what will happen at the end.

History suggests, when looking at other products that get tax relief or were tax free, that the benefits will remain on the amounts already paid in. Retirement annuity contracts, LAPR on life assurance commenced before 1984, PEPs to name a few.

However, some of these same examples have also have also had the benefits reduced. i.e. PEPs were more tax free than ISAs but are now the same as ISAs (you would think tax free would mean tax free wouldnt you ). LAPR was higher in 1985 than it is now (at it's best it was 80% relief - now its 15%). ISAs themselves have been amended over their short life and some of the changes affected early ones.

It would be very easy to make the products taxable without them being closed. ISAs would become unit trusts, OEICs or normal savings accounts (depending on what version).

Its also interesting to see how the cash ISA has developed. It was meant to be a small savings account designed to be operated by supermarkets. Idea was to pay for your goods at the till and have the ability to add to your ISA at that point. This is why the initial limit was at £1000. The banks were never going to be involved with a branch product at that stage. However, the retailers soon realised that the costs complying with account regulations and the equipment and training required against the amounts that were likely to be involved plus the Govt pushing for a low profit margin led to them pulling out. So, to stop it being a failure before it launched, the limit was increased to £3000 for an initial period to get the banks interested. This worked and the banks could make a profit over the long term with that amount. So, whilst you think Gordon Brown was being generous with the cash ISA limit extension, the reality was that it needed to remain at that level for the banks to continue offering it.

So, the cash ISA in its current state is here by accident. It's Gordon Brown's baby so will it continue if Conservatives got into power? They seem to have an interest in a lifetime savings account. Although with a new leader and a lot of time to review, that could end up being anything.

So, the only thing you know is that you can invest £7000 a year into an ISA and that they are here until at least 2010. After that, it's all guesswork.

fted

thank you both for your answers.

cheerfulcat

dunstonh wrote:

So, the cash ISA in its current state is here by accident. It's Gordon Brown's baby so will it continue if Conservatives got into power? They seem to have an interest in a lifetime savings account. Although with a new leader and a lot of time to review, that could end up being anything.

Tessas ( introduced by a Conservative government ) were here before ISAs and IIRC had a yearly limit of £3000. PEP , again IIRC, had an annual allowance of £9000. That was £12000 a year we could save/invest, tax free, compared to £7000 a year now. And by the usual smoke and mirrors ( introducing Maxi ISAs with a "starting limit " of £7000, due to reduce to £5000, and then having " last minute second thoughts " ) Gordon Brown has diverted attention from the fact that £7000 in 2010 is nothing like £7000 in 1999 - he has managed to avoid any sort of index linking. The fact is, you are more likely to have tax incentives under a Conservative than under a socialist government.

isasmurf

cheerfulcat wrote:

Tessas ( introduced by a Conservative government ) were here before ISAs and IIRC had a yearly limit of £3000. PEP , again IIRC, had an annual allowance of £9000.

TESSAs were £3,000 in the first year, and £1,800 per year after that subject to an overall limit of £9,000. PEPs were £6,000 in a General PEP and £3,000 in a single company PEP.

The fact is, you are more likely to have tax incentives under a Conservative than under a socialist government.

Come again? With stocks and shares true. With cash under the Tories, £1,800 per year up to a maximum of £9,000. Under a 'socialist' government, £3,000 per year, up to an unlimited maximum. In 2010, you could have £42,000 plus interest sitting in a tax incentive savings account. Even in real terms that's a lot less then the £9k the tories would let you have.

dunstonh

Come again? With stocks and shares true. With cash under the Tories, £1,800 per year up to a maximum of £9,000. Under a 'socialist' government, £3,000 per year, up to an unlimited maximum. In 2010, you could have £42,000 plus interest sitting in a tax incentive savings account. Even in real terms that's a lot less then the £9k the tories would let you have.

Dont forget the hit on pensions. Although there has been an increase in amounts allowed with Cash ISAs, it has been funded by taking away allowances elsewhere.

Milarky

This will amuse you all then...

http://www.nationwide.co.uk/mediacentre/PressRelease_this.asp?ID=755

ISAs

ISA limits have remained unchanged since they were first introduced in 1999. The £7,000 limit for saving into a maxi ISA is worth only £5,982 at today’s prices, while the £3,000 cash ISA limit is now worth just £2,564 after six years of inflation.* Nationwide is calling on the Government to extend the maxi ISA limit from £7,000 to £9,000, and extend the Cash ISA limit from £3,000 to £4,000.

We'd all agree with that, naturally, but it is just a bit too balantly self-interested to be saying it, isn't it?

Yes, ISAs are more generous compared to TESSAs [a bit less compared to PEPs though?] but why could the Treasury not have just made things eaiser for everyone by introducing something like an annual 'unearned income' allowance instead [which would be in addition to the personal allowance we already get and would get around the problems of having to build up to tax free savings gradually and inflexibly and rarely at the 'best' rates either]?

cheerfulcat

isasmurf wrote:

TESSAs were £3,000 in the first year, and £1,800 per year after that subject to an overall limit of £9,000. PEPs were £6,000 in a General PEP and £3,000 in a single company PEP.


Come again? With stocks and shares true. With cash under the Tories, £1,800 per year up to a maximum of £9,000. Under a 'socialist' government, £3,000 per year, up to an unlimited maximum. In 2010, you could have £42,000 plus interest sitting in a tax incentive savings account. Even in real terms that's a lot less then the £9k the tories would let you have.

I don't know why you have put quote marks around socialist, unless you find the current administration insufficiently so; Labour is avowedly socialist and redistributive.

Under the old plans ( thanks for the details, sorry for getting that wrong ) there was considerably more incentive to save than under the current regime. The fact is that the present government would prefer us to be reliant on *it*, rather than on ourselves. Why else the faffy and expensive tax credits?

deemy2004

Milarky wrote:

This will amuse you all then...

http://www.nationwide.co.uk/mediacentre/PressRelease_this.asp?ID=755

ISAs

ISA limits have remained unchanged since they were first introduced in 1999. The £7,000 limit for saving into a maxi ISA is worth only £5,982 at today’s prices, while the £3,000 cash ISA limit is now worth just £2,564 after six years of inflation.* Nationwide is calling on the Government to extend the maxi ISA limit from £7,000 to £9,000, and extend the Cash ISA limit from £3,000 to £4,000.

What about TESSA allowance adjusted value ? Its meaningless.. comparision as implies that the value of the ISa has been devalued ! When these are the best thing since sliced bread ! Especially in a climate of low inflation that we have enjoyed ! There is no comparison between a £9k TESSA or TOISA and the £24k you could have put away in an Cash ISA.

I can't imagine no new tax free accounts after 2010 !
Yeh it would be good if the £3k limit were raised - But it has been a good incentive for people to save a targetted amount each year. And since the stock market perked up many are also using their Mini ISa allowances up as well even though the benefits there are less evident, given the quarterly charges by most brokers.

dunstonh

are also using their Mini ISa allowances up as well even though the benefits there are less evident, given the quarterly charges by most brokers.

No mention on the charges on cash ISAs then? What if funds were priced the same way as savings accounts, would you comment the same way then?