ISAs here to stay

isasmurf

Primrose wrote:

Do you think TOISA's (Tessa Only ISAs) will also be subject to this future flexibility? Read the BBC article but these weren't mentioned.

TOISA's don't exist and haven't existed for at least 2 years. They are, and always were cash ISAs. You have always been able to transfer a TOISa or a Matured TESSA to other Cash ISAs.

whambamboo

oldfella wrote:

let me say it again

cash ISA = no tax
S&S ISA = tax is deducted at source from dividends

bulk switching helps the tax man - and we loose a long term tax benefit. imho a mix of cash ISA and S&S is the way to go

Depends on the individual's circumstances.

If you have a lot of money invested, the CGT will start to bite.

If you are a higher tax rate payer, even though the tax due on dividends is lower (25% of receipts vs 40%), the superior capital growth of the equity ISA will mean that the tax on the yield from the shares will eventually exceed the tax on the interest from the cash.

ReportInvestor

Here's a funny piece in the

FT

full of quotes from the investment industry about how the ability to switch from cash to shares is "excellent news" :rotfl: [for them :rolleyes: ].

But there is no-one willing to put the case for the ordinary saver/investor - which is probably another reason why the government gets its legislation wrong. The FT just mentions unnamed advisers [possibly FT journos making it up] who doubted if the public had an appetite for equity saving.

However BestInvest do make the point that the Chancellor should consider alllowing a switch from equities into cash later as people seek to reduce risk nearer retirement, as IFAs should advise. [There is no mention that the unwanted side effect is likely to be an unhealthy appetite for Corporate Bonds from ISA invested Baby Boomers that could distort the CB market.]

Of course the Chancellor will not allow such a switch to cash.

Here are the figures to show why the Chancellor will be reluctant to raise the cash ISA limits but may not mind raising the equity ISA limits

".....Cash-Isas have proved far more popular than equity Isas in the past. There is currently £111bn invested in cash Isas, compared with £70bn invested in equity Isas, even though the cash component has lower investment limits. When Isas were launched in 1999, equity Isas accounted for 56 per cent of all Isa subscriptions....."

£111bn already = a £1.4bn annual cost to the Treasury assuming ISAs are invested @ 5% and 30% of Cash ISA money comes from Higher Rate Taxpayers. I suspect the HRT percentage, & the cost to the Treasury might even be higher than this.

P.S. A pity about the merged thread. This is now quite difficult to follow.

EdInvestor

The Govt's explanation of the divi tax credit:

How dividends are paid

When you get your dividend you also get a voucher that shows:

* the dividend paid (the amount you received)
* the amount of associated ‘tax credit’

Companies pay you dividends out of profits on which they have already paid (or are due to pay) tax. The tax credit takes account of this and is available to the shareholder to offset against any Income Tax that may be due on their dividend income.

When adding up your overall taxable income you need to include the sum of the dividend(s) received and the tax credit(s). This income is called your ‘dividend income’.

*How tax credits are worked out

The dividend you are paid represents 90 per cent of your ‘dividend income’. The remaining 10 per cent of the dividend income is made up of the tax credit. Put another way, the tax credit represents 10 per cent of the dividend income.
Dividend paid to you (represents 90% of the dividend income) Tax credit (10% of the dividend income) Dividend income (dividend paid plus tax credit)
£63 £7 £70
£54 £6 £60
£90 £10 £100

*Paying tax on dividend income

If you pay tax at or below the basic rate

You have no tax to pay on your dividend income because the tax liability is 10 per cent - the same amount as the tax credit – as shown in the tables.

If you pay tax at the higher rate

You pay a total of 32.5% tax on dividend income that falls above the basic rate Income Tax limit (£33,300 for the 2006-2007 tax year). But because the first 10 per cent of the tax due on your dividend income is already covered by the tax credit, in practice you owe only 22.5 per cent. [of the divi+ tax credit, 25% of the divi alone]

*Can you claim the tax credit if you don’t normally pay tax?

No. You can’t claim the 10 per cent tax credit, even if your taxable income is less than your personal allowances and you don’t pay tax. This is because Income Tax hasn’t been deducted from the dividend paid to you – you have simply been given a 10 per cent ‘credit’ against any Income Tax due.

#For the same reason you can't claim the 10% tax credit in an ISA, because it isn't a tax. The additional tax on top for HRTs ( which is a tax) is of course not paid.

Milarky

ReportInvestor wrote:

... BestInvest do make the point that the Chancellor should consider alllowing a switch from equities into cash later as people seek to reduce risk nearer retirement, as IFAs should advise.

They (the gov't) can't rationally object to that... but they view that as the thin end of a wedge.. so (rationally) the best thing is to keep your trap shut (i.e say nothing) which seems to have been their way of handling the whole area of ISAs since they came in.

david78

dunstonh wrote:

Perhaps the Govt could rename it from stocks and shares ISA to investment ISA to reflect the fact that you can put other things in them and not just stocks and shares.

Like cash!

stphnstevey

Can I convert ALL my cash ISA allowance I have built up to a S&S ISA then next year?

ReportInvestor

You should be able do that.

You will be in a significant minority, however.

stphnstevey

Why's that?

jamesd

The 2006 pre-budget report on ISAs(PDF) is worth a read:

"Savers will instead be able to contribute to two components: cash and stocks & shares. They will be able to hold one of each component per year, with either the same or different providers. The overall annual investment limit will remain at £7,000: savers will be able to invest up to £3,000 in cash and the balance in stocks & shares. For example, an individual will be able to save £1,000 in cash with one provider and £6,000 in stocks & shares with a different provider."

"a saver with, say, £12,000 accumulated in the cash component in previous tax years will be able to move some or all of it into the stocks & shares component, and still invest a further £7,000 into their ISA in the current tax year."

The other the pre-budget report documents are also available.

stphnstevey, I'm not aware of anyone who has put together a package of really low volatility bonds and used long - decades - past performance to show that they have low risk and significant return. That sort of thing and lack of risk undersanding will probably continue to discourage many people from considering moving from savings accounts to stocks and shares ISAs. It'd be really good if some providers started to put together such low volatility packages to ease people into the switch.