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

the_flying_pig

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)

er, yes.

if you save a small amount [e.g. £100 a year] via an ISA, you get the tax break.

if you save a medium sized amount [e.g. £1,000 a year] via an ISA, you get the tax break.

if you try to save a really big amount [e.g. £10,000 a year], you can't get an ISA tax break on all of it.

so I don't understand why anyone would think that ISAs are only for the rich.

Lokolo

JimmyTheWig wrote: »

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.

I didn't say they wouldn't benefit MORE, I just said that poor people still benefit.

ISAs don't benefit JUST the rich. They may benefit the rich more but it doesn't mean no-one else benefits does it?

the_flying_pig wrote: »

er, yes.

if you save a small amount [e.g. £100 a year] via an ISA, you get the tax break.

if you save a medium sized amount [e.g. £1,000 a year] via an ISA, you get the tax break.

if you try to save a really big amount [e.g. £10,000 a year], you can't get an ISA tax break on all of it.

so I don't understand why anyone would think that ISAs are only for the rich.

* unless you are a non tax payer (and don't plan on becoming one) of which ISAs are not much benefit

But yes agree with the rest of your post

michaels

That might concentrate minds when decisions were made on whether to debase the currency for political reasons, after all isn't tax on inflation returns to savings the ultimate stealth tax?

CLAPTON wrote: »

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

ILW

Why should the "rich" or possibly prudent be punished at all?

CLAPTON

michaels wrote: »

That might concentrate minds when decisions were made on whether to debase the currency for political reasons, after all isn't tax on inflation returns to savings the ultimate stealth tax?

yes indeed

inflation is the ultimate stealth tax which is why it is so beloved by our politiicians and so your suggestion has absolutely no chance of happening on any significant scale (one can't even buy index linked savings certs anymore- too popular)

JimmyTheWig

Lokolo wrote: »

I didn't say they wouldn't benefit MORE, I just said that poor people still benefit.

ISAs don't benefit JUST the rich. They may benefit the rich more but it doesn't mean no-one else benefits does it?

Arguably, those who benefit by less than the average are losing out.
If the government gave everyone in the country a tax break of £100 tomorrow apart from me who they gave a tax break of £50 I would feel hard done by. Firstly because it wouldn't be fair on me. Secondly betcause the tax-funded services I use would be cut by the equivalent of around £100 and I would only get £50 of this back.

michaels

the_flying_pig wrote: »

er, yes.

if you save a small amount [e.g. £100 a year] via an ISA, you get the tax break.

if you save a medium sized amount [e.g. £1,000 a year] via an ISA, you get the tax break.

if you try to save a really big amount [e.g. £10,000 a year], you can't get an ISA tax break on all of it.

so I don't understand why anyone would think that ISAs are only for the rich.

Because they are cumulative.

I bet if you looked at who benefits most from this tax break you would find it strongly correlated with those who have both the most assets and the largest incomes. Even a flat rate income tax takes an equal proportion from rich and poor alike, this tax break does not do that it rewards only those rich enough to save every year.

smartn

So you are suggesting removing one of the few incentives to save and provide for the future we have in this country. Lets all just spend it instead and let the state provide for us in retirement - now that would get interesting...... 10K a year, you are not talking abour rich people here, just financially prudent I'd have thought. The mega rich will always find ways to avoid paying tax, ISA's are for everybody!

Kennyboy66

A really good question - yet still no defenders have actually come up with an economic argument why there should be tax break on this.

A side issue would be, why are there generally slightly better savings rates outside of ISA's rather than inside ISA's ??

It becomes a de facto subsidy to savings providers.

The larger issue is why have we had almost 30 years were progressively we have taxed employment (income tax plus national insurance) at a higher rate than savings or capital gains. This is even without considering that employers pay a tax to employ someone.

Is there an economic argument for this ???

Kennyboy66

michaels wrote: »

Because they are cumulative.

I bet if you looked at who benefits most from this tax break you would find it strongly correlated with those who have both the most assets and the largest incomes. Even a flat rate income tax takes an equal proportion from rich and poor alike, this tax break does not do that it rewards only those rich enough to save every year.

The estimate (in 2010) was that 70% of the cost of tax relief for pensions and ISA went to people earning more than £50k.

There seems even less justification for share ISA (inappropriate for probably the poorest 50% of society), there is no benefit on dividends for basic rate tax payers, so the only benefit is for higher rate taxpayers who have accumulated huge pots over the decades and can escape CGT.

Mmmm - I wonder why this government of multi- millionaires are so keen to keep it.