Scrap ISAs as most of the tax benefit goes to the rich?

michaels

Sorry, no VI piece to quote, just my own musings.

I can see the country benefits if everyone puts aside some savings for a rainy day (unemployment, sickness, unexpected cost) but beyond having a cushion, ISAs merely act as a tax shelter for those rich enough to have large savings...by definition the rich.

In straightened economic times surely such a subsidy from the poor to the rich should be removed. We are also in an economic situation where whilst it makes snese for people to pay down debt and as mentioned above build up a rainy day fund, incentivising those with spare income to save it rather than spend in the wider economy is liekly to be exacerbating the recession.

Can anyone give a good fairness or economic arguement for keeping the uncapped isa system? Why not just limit the ISA benefit to 10k of savings or £x of tax relief?

pqrdef

These things are invented by the City to pull in money for the City to churn.

Any apparatchik at the Treasury who made a proposal like this could kiss goodbye to his chances of a seat on a board at a bank with nice fat bonuses and pensions.

Lokolo

michaels wrote: »

Sorry, no VI piece to quote, just my own musings.

I can see the country benefits if everyone puts aside some savings for a rainy day (unemployment, sickness, unexpected cost) but beyond having a cushion, ISAs merely act as a tax shelter for those rich enough to have large savings...by definition the rich.

In straightened economic times surely such a subsidy from the poor to the rich should be removed. We are also in an economic situation where whilst it makes snese for people to pay down debt and as mentioned above build up a rainy day fund, incentivising those with spare income to save it rather than spend in the wider economy is liekly to be exacerbating the recession.

Can anyone give a good fairness or economic arguement for keeping the uncapped isa system? Why not just limit the ISA benefit to 10k of savings or £x of tax relief?

Sorry that doesn't make any sense. Why is it only a benefit to those with LARGE savings?

Cash ISAs are a benefit to anyone who pays tax. So anyone with any savings (and they could be rich people, they could be not so rich people) benefit from Cash ISAs.

ISAs also stop the rich taking most advantage by limiting the amount you can put in a ISAs each year.

Fella

michaels wrote: »

Can anyone give a good fairness or economic arguement for keeping the uncapped isa system?

OK here goes. On an individual-to-individual comparison rich people already pay for more tax then poor people. In most cases that will include tax on income which will have already been levied at the higher rate for the rich person & the lower rate (or none at all) for the poor person. Therefore it seems eminently fair that the rich person should be entitled to at least the same tax breaks as someone who's already paid far less tax than them, on whats left of their money.

CLAPTON

ISAs contributions are capped

this years cash allowance is 5,640 or double that for S&S

rich people would consider that amount of money trivial.

older people benefit as do the middle income earners

and if course its only the interest that is tax free lets say £200 gross max per annum so saving about £40 - 80 in tax

nice, but hardly going to lead to revolution

michaels

Everyone could have the same tax break - first 500 quid of savings income. THis would still be regressive as the poorest woud benefit least but at least those with the spare income each year to use all their isa allowance wouldn't be getting a tax break worth thousands (say a 200k tessa/isa pot earning 5% would give a 4k benefit to a top rate tax payer).

(Of course the taxation of nominal gains frominflation is another issue but I would give an inflation tax releif anyway)

CLAPTON

michaels wrote: »

Everyone could have the same tax break - first 500 quid of savings income. THis would still be regressive as the poorest woud benefit least but at least those with the spare income each year to use all their isa allowance wouldn't be getting a tax break worth thousands (say a 200k tessa/isa pot earning 5% would give a 4k benefit to a top rate tax payer).

(Of course the taxation of nominal gains frominflation is another issue but I would give an inflation tax releif anyway)

wouldn't an 'inflation' tax relief mostly benefit the rich as they have more money?

michaels

Interesting point. Generally it is suggested that inflation is hardest on the 'poorest in society' but with negative real interest rates perhaps it is highly progressive <thinks>

CLAPTON wrote: »

wouldn't an 'inflation' tax relief mostly benefit the rich as they have more money?

kabayiri

pqrdef wrote: »

These things are invented by the City to pull in money for the City to churn.
...

Plus, modern back-office computer systems make it so easy to churn too.

Bulk up all those trust accounts and other 'managed' product. Make a single trade in the marketplace and enjoy all the commission/charges.

Luvvly jubbly. Some of our biggest stockbroker firms cream it in.

JimmyTheWig

Lokolo wrote: »

Cash ISAs are a benefit to anyone who pays tax. So anyone with any savings (and they could be rich people, they could be not so rich people) benefit from Cash ISAs.

The rich will have more savings. They will be more likely to fill their ISAs. So will benefit more from them.
They will also be less likely to need to withdraw the money in their ISAs (as they'll be more likely to fill their ISAs and have money left over) and so be more likely to build up a tax-free savings pot with each year's full allowance.

CLAPTON

inflation has no effect on savings if you have no saving

inflation may or may not be hardest on the poor depending upon what level of wage inflation they enjoy

in the great inflation of the late 70s early 80s the main beneficiaries were people with high debt (mortgages) and the main losers were people with savings (the rich); people with neither savings nor debts werent' affected much as wages were then going up with inflation.


in any event the cost of index linking saving interest with inflation would dwarf the modest cost of ISAs tax savings.