Abolish tax on savings

Milarky

loaner wrote: »

Cash isa's are a bureaucratic waste of time, they always pay a lower rate than equivalent non-isa account, are difficult to move, have restricted terms, can be withdrawn at any time. At current rates of interest, the tax free benefit is worth peanuts to a basic rate tax payer. Even if you have 40K in them, you have effectively taken out a ten year bond at a derisory interest rate, which is not the best use of money.

Well spotted - old Indian banking rope trick..

Cash ISAs are of marginal benefit to anyone except HR taxpayers...

As to interest rates and tax thereon: Government could take a step to cut the rate to (say) 15% - a 5% income boost for savers. Not a lot now, but in future it will act as an incentive to save as rates do go up. Government wouldn't being playing fast and loose with the public finances doing this either as it would still keep 75% of what it takes now....

(unintended consequence, however, cash ISAs will become even more marginal)

manic_saver

If only britain was a tax free haven. But no matter what way you look at your money whether you save or spend it you will always be taxed one way or another.

I will be annoyed if 1 bank decides to cut the 1.5% to savers and not pass it on to the mortgage holders within that bank.

earlgrey_3

Zebra wrote: »

It's not your savings that are being taxed - it's your income from those savings, just like every other type of income. And why not?

I think the point the OP was making is that when interest rates are lower than inflation rates then there isn't any "income".

In real terms the saver would actually be getting back less that he lent so there would be a loss but tax is still paid on the whole amount of interest received as if there were gain. Only if interest is higher than inflation is there a real gain. The actual gainers are those who borrow at low rates during higher inflation and that gain is normally untaxed.

It isn't equitable and often hits those with relatively small saving but in practical terms, unfair or not, any reduction for one tax payer means either an increase for another or less spent on services.

MrExample

john_s wrote: »

Whenever I get into a discussion with someone who's saying "[insert taxation of your choice] should be cut / abolished," I always say what the earlier poster said (which other tax would you like increased instead?)

But I also add two other questions:

1. Or which expenditure would you like to see cut?

And the final clincher, which usually results in them mumbling something inaudible:

2. And would that tax increase or expenditure reduction affect you?

ID cards. I'm sure we could get a few years of tax-free savings out of the money saved from abolishing that.

GooeyBlob

The government have effectively been discouraging savers and encouraging debt for the past decade. Tax-free savings limits were reduced to £7,000 per year (£3,000 for cash-only ISAs) when Brown became chancellor (TESSAs and PEPs between them were more generous), and then that limit was frozen year upon year, meaning tax-free savings limits have effectively been substantially reduced in real terms. A rather derisory rise to £7,200 (or £3,600 for cash ISAs) has been too little, too late.

On top of this, in 2003 Gordon Brown instructed the Bank of England's Monetary Policy Committee to discard RPI and use CPI as its measure of inflation for setting rates, disregarding house price inflation entirely. This led to savings rates which were very low, and loan rates which were highly irresponsible. Demand from borrowers soared and banks lent money they didn't have, because there were not enough depositors to cover the borrowing frenzy. That led to the run on Northern Rock, and the rest, as we know, is history.

We need more incentives to save, and less to borrow. Maybe a reduction in tax rates would help, and perhaps the BoE should be looking at RPI again, instead of CPI. We need to encourage a more responsible approach to money, although I don't see Gordon Brown being particularly keen on the idea.

So it's a cautious thumbs-up for extra tax incentives for savers from me. Even if those incentives are not much more than a token gesture.

earlgrey_3

loaner wrote: »

Cash isa's are a bureaucratic waste of time, they always pay a lower rate than equivalent non-isa account, are difficult to move, have restricted terms, can be withdrawn at any time. At current rates of interest, the tax free benefit is worth peanuts to a basic rate tax payer.

Even if you have 40K in them, you have effectively taken out a ten year inflation ravaged bond at a derisory interest rate, which is not the best use of money.

As for Martin managing to overturn a tax with a campaign, I wouldn't hold your breath.

Every year there's an April fiasco due to incompetent banks and would agree there must be an easier way to encourage savings. Most money for ISA accounts just comes from 'ordinary' accounts so there's unlikely to be any real increase in overall savings.

Even worse are S&S ISAs which have no benefit for the majority of people other than as a sales ploy by financial advisers.

They tend to lock small investors into investments when they should be moving to cash and this year must have cost the unwary zillions as markets fell.

Zebra

earlgrey wrote: »

I think the point the OP was making is that when interest rates are lower than inflation rates then there isn't any "income".

The same could be said for those earning wages when their wage increases are less than the rate of inflation, yet they still have to pay tax on all their wages.
Nobody enjoys paying tax but it's the price you pay for living in the society that we do.

Tony_Webster

Zebra wrote: »

The same could be said for those earning wages when their wage increases are less than the rate of inflation, yet they still have to pay tax on all their wages.
Nobody enjoys paying tax but it's the price you pay for living in the society that we do.

Of course we need to pay tax, but that shouldn't mean a blank cheque for the Government to draw on. I don't see anything wrong in querying whether tax levels are appropriate or levied on the right things.

"Shut up and pay up" is a dangerous concept. You'd be amazed how many people in Government, or who lobby Government, fail to appreciate that Government money really means taxpayers money.

Zebra

Tony_Webster wrote: »

Of course we need to pay tax, but that shouldn't mean a blank cheque for the Government to draw on. I don't see anything wrong in querying whether tax levels are appropriate or levied on the right things.

"Shut up and pay up" is a dangerous concept. You'd be amazed how many people in Government, or who lobby Government, fail to appreciate that Government money really means taxpayers money.

Of course you can query whether taxes are appropriate, you can even voice your opinion on them via the ballot box.
However some people seem to be trying to create an artificial distinction between different types of income, according to whichever suits them the best.

StevieJ

If the govt follow all these suggestions (which they are apt to do in current mode) they will have no money coming in the coffers at all.