Thoughts on a possible ISA tax (Lifetime Allowance)

love2learn

Given the fact that there is a current Lifetime allowance on pensions of £1.5Million, and any benefits taken over this are taxed over and above the income tax from receiving a pension...

Does anyone think that the government would be able to impose a lifetime allowance on a stocks and shares ISA?

Over time compounded growth could bring Stocks and Shares ISA's to over £1.5Million...

I think anything is possible with the Government, but I think it could be harder to do this; given the fact that people have always been told ISA's are tax free....

You're thoughts are appreciated...

Marco12452

I'm not sure the 2 actually correlate.
There is no limit on the ISA investment value ove a lifetime, apart from circumstance. You would only likely to be contributing to a SS ISA for the period you are working and have disposable cash. In essence this means from 18 to lets say 70, so 63 years in total, that would allow ISA investment of £672,840 max, and assuming the investments work well then we would expect this to be a much higher vaule, but the investment has still only been £672,840 which is the amount that the limit governs, not the capital gains.
I know the limit will increase over the years but in real terms it will be around the same value, as the ISA limit will increase too.

Assuming this investment does very well and has a value of £2M at the time you wish to retire, that is fine. You have £1.5M limit for an annuity should you choose to go with that, and £0.5M left in capital. This has nothing to do with the ISA it is a separate purchase choice from the ISA capital.

You could always consider using a £2M pot as a drawdown pension though, so you don't lose capital if you don't realise an old age.

jamesd

A government could impose a lifetime allowance with penalties but what penalties? A pension can also exceed the lifetime allowance but in that case the tax charge is made theoretically to recover the tax relief granted when money was paid in. No such relief for an ISA. For the pension you can try to avoid the limit by taking benefits as soon as you reach 55, to use up the smallest possible percentage of the lifetime allowance.

The annual payment cap for an ISA is more severe than the one for a pension and that acts as a limit. So does the tax efficiency of making pension contributions at higher or top tax rates, so that provides some incentive to limit ISA contributions to the income range from zero to the start of higher rate tax, lest 40% or 50% tax relief be lost.

Legislative risk is a fact of life in all tax wrappers and investment decisions. Just an unavoidable risk.