ISA reforms confirmed for 2008

Milarky

The point about the the non-covertibilty of stocks (ISA) into cash (ISA) is that - when you do encash your investments you can't get a tax free income from them. It's also an obvious ploy to reward the less successful equity ISA route by creating an unequal (actually a still more unequal) playing field between cash and investments. (Where else does the government reward failure?) If ISAs had ever been designed around the needs of consumers - rather than the needs of the financial services industry to push product - then they wouldn't look this this.

And to have to admit that equity ISAs are wasteful for basic rate taxpayer (who do better with taxable - and therefore enitrely flexible investmest alternatives) is an indictment of the mangled managerialism of the future PM

EdInvestor

cheerfulcat wrote:

You miss the point that it used to be possible to reclaim the dividend tax credit within pension and PEP wrappers, and even outside of wrappers if one was not a taxpayer.

Yes but so what? This is now years out of date, and mentioning it just confuses people about the differences now.

Equity investment may have fewer tax advantages to the investor than it used to have ( though quantifying this is not as easy as some would have you believe).

But it is till much better treated tax wise than other asset classes, especially as far as direct investment is concerned.

And don't you think it's helpful that you can now use your ISA for property, bonds and cash, because equities can be accessed effectively tax free by going direct?

For anyone who wants a balanced portfolio, this was a useful change.

cheerfulcat

EdInvestor wrote:

Yes but so what? This is now years out of date, and mentioning it just confuses people about the differences now.

Because unless people are reminded how things were, they will be bamboozled by politicians about how things are now, and about how they have " improved " them.

RayWolfe

OK, so if we have to remember that, should we also remember that it was to do withe the abolition of ACT (a process started by a Tory chancellor) as an incentive for British companies to reinvest more of their profits in the business rather than paying a higher rate than successful companies in the rest of the world. I was accompanied by a reduction in Corporation Tax from, if think, 33% to 29%.
It's not surprising that people forget the good things that are used as offsets to what they consider bad things!

sad_ken_2

EdInvestor wrote:

Equity investment may have fewer tax advantages to the investor than it used to have ( though quantifying this is not as easy as some would have you believe).

But it is till much better treated tax wise than other asset classes, especially as far as direct investment is concerned.

And don't you think it's helpful that you can now use your ISA for property, bonds and cash, because equities can be accessed effectively tax free by going direct?

Would you mind explaining this in a bit more detail? I think you're saying that stocks and shares are better treated tax wise that other investment types because only 10% tax (or 32.5% if a higher rate tax payer) is payable on gains. And for this reason, you're better off using you ISA allowance for property & bonds because you'd pay 20% tax (or 40% if a higher rate tax payer) on any gains if it wasn't within an ISA.

EdInvestor

It's not surprising that people forget the good things that are used as offsets to what they consider bad things!

Exactly: arguably that reduction in corporation tax has increased company profits, which has led to rising share prices, offsetting the effect on the dividend. So what you lose on the swings you gain on the roundabouts.

Investors should look at the bottom line now and leave the politics out of it.Especially as in this case the move didn;t change the situation: equities get better tax treatment than other asset classes, then and now.

EdInvestor

sad_ken wrote:

Would you mind explaining this in a bit more detail? I think you're saying that stocks and shares are better treated tax wise that other investment types because only 10% tax (or 32.5% if a higher rate tax payer) is payable on gains.

Dividends come with a 10% notional tax credit attached.This pays the tax, so there's nothing more to pay for those on basic rate, and the tax on the dividend amount for higher rate taxpayers drops to 25%.

On the capital gains side, there is nothing to pay unless gains are actually realised ( ie shares /funds are sold for a profit). Then there is a tax free allowance of almost 9k, so any profit under that is disregarded.So CGT is pretty easy to avoid.

And for this reason, you're better off using you ISA allowance for property & bonds because you'd pay 20% tax (or 40% if a higher rate tax payer) on any gains if it wasn't within an ISA.

That's right.

jem16

EdInvestor wrote:

Dividends come with a 10% notional tax credit attached.This pays the tax, so there's nothing more to pay for those on basic rate, and the tax on the dividend amount for higher rate taxpayers drops to 25%.

Why 25%?

The tax on dividends for a higher rate taxpayer is 32.5% minus the 10% equals 22.5%.

Not a big difference but it all helps.

cheerfulcat

EdInvestor wrote:

Investors should look at the bottom line now and leave the politics out of it.Especially as in this case the move didn;t change the situation: equities get better tax treatment than other asset classes, then and now.

No. Geoffo was right; the removal of the ability to reclaim the dividend tax credit means that for a small investor who is a non- or basic rate taxpayer, S&S ISAs no longer offer a tax advantage. Nowt to do with politics ( though everything to do with politicians...)

isasmurf

The dividend debate has been done many times over previous threads, can we please keep this thread to helping people understand the new rules and leave the politics out of it.

Getting into complicated issues may be interesting to the regulars and experienced investors but it doesn't help those with little knowledge get quickly to the information they need to understand the new rules.

Thanks.