Cash Isa Petition

grey_gym_sock

MoneySaverLog wrote: »

Everyone pays income tax on earned income regardless of whether some of it is saved in a cash ISA or not.

wrong. not everyone has earned income.

Paul_Herring

grey_gym_sock wrote: »

wrong. not everyone has earned income.

But the interest on non-tax-free cash savings is counted as earned income, and as such falls under the auspices of income tax. (Absent the tax free allowance dictated by your tax code.)

grey_gym_sock

Paul_Herring wrote: »

But the interest on non-tax-free cash savings is counted as earned income, and as such falls under the auspices of income tax. (Absent the tax free allowance dictated by your tax code.)

i'm not sure how this relates to the original question now.

dunstonh

t's a ISA allowance, one should be able to hold the full lot how they want. If they want to hold it all as cash there is nothing wrong with that, just as if someone wants to risk it all in the stock market they can risk their whole ISA allowance.

They are able to hold their cash ISA allowance how they want. The fact that S&S ISA has a higher allowance doesnt mean that Cash ISAs should have a higher allowance. As already mentioned, the tax free benefit of cash ISAs is greater than S&S ISAs plus S&S ISAs typically contain investments which aid the economy. Cash ISAs do not.

To penalise those who want the safety of cash to forego half their ISA allowance is what I don't agree with. If you want to use "YOUR full ISA allowance of £11,280" as cash then so be it.

It is not half an allowance. It is two allowances with permission for the lesser costing allowance to use up the other if they wish.

If you wanted to extend the cash ISA allowance, who would you penalise to raise the near £2 billion to pay for it?

Gordon Brown should have kept individual names for the two products to avoid confusion. PEP and TESSA could have been kept but limits changed.

coastline

I would like to see cash ISA's paying the same as fixed rate bonds....which isn't always the case..
Often you'll see a standard 1 year fixed rate paying for example...3.5% ....and the same ISA on 3%...after all ISA's were brought out to save the tax for individuals..

jamesd

MoneySaverLog wrote: »

The ISA limit is £11,280 it's not circumventing anything

The cash ISA limit is lower than including the S&S ISA limit. So let people put money into S&S then transfer to cash and that would allow circumventing the cash limit as long as that is less than the whole ISA limit.

MoneySaverLog wrote: »

just allowing people to save and invest how they want instead of being forced to put money into shares that are risky.

You don't have to use risky shares in a S&S ISA. You can use bonds if you want to. You can also put in cash and pay a 20% charge on the interest instead of the full income tax rate, though the interest rates on cash inside an S&S ISA are normally low compared to the best savings accounts.

MoneySaverLog wrote: »

Some need or want to save large sums every year, some have a vision of buying a house and need a bigger deposit than most.

Wanting or needing doesn't mean that it has to be done in a tax free way. The average income for a working British family is about £40,000 before tax. Two ISA allowances is more than half of that before tax income and just the cash ISA portion for two people is getting close to half of the after tax income.

What you're effectively asking for is an increased tax break for those who are already on higher than average incomes. Is that really a good place to target the extra taxation money that would be needed to pay for it? I don't think it is. I do think it's tougher for those in SE England than other parts of the country.

I'm sympathetic to the pensioner argument. Perhaps that could be handled by allowing up to five years of unused cash ISA allowance to be used for a transfer to cash ISA from a pension pot's tax free lump sum. That could be all of the lump sum from £200,000 of pension pot, far larger than the average pension pot in the UK.

N1AK

MoneySaverLog wrote: »

To penalise those who want the safety of cash to forego half their ISA allowance is what I don't agree with. If you want to use "YOUR full ISA allowance of £11,280" as cash then so be it.

The money is yours the allowance isn't. Some people only pay 20% tax on income, others pay 40% they don't get to decide which and ISA allowances are exactly the same. If I buy a lettuce I don't pay VAT, but if I choose to buy petrol I pay a massive amount of tax.

The government didn't want, and the economy as a whole is better without, people saving large amounts of money as cash savings rather.

A couple could already have ~£120,000 in cash ISAs by using the allowances thus far available. Opening up the whole allowance to cash would double that to £240,000 CASH. I do not believe the best use of government subsidy is protecting people who want to keep a quater of a million pounds in cash tax free; I also don't believe that it is in the best interest of those individuals, or the wider economy, for the money to be kept in that way rather than invested.

dunstonh

coastline wrote: »

I would like to see cash ISA's paying the same as fixed rate bonds....which isn't always the case..
Often you'll see a standard 1 year fixed rate paying for example...3.5% ....and the same ISA on 3%...after all ISA's were brought out to save the tax for individuals..

Now that is a more justifiable request and more worthy of a petition.

There are some things which hinder it though. Cash ISAs do cost banks more to operate than a normal savings account of fixed term deposit. It isnt as much as it used to be due to computerisation but it is still a cost.

Another issue is that fixed term ISAs cant tie your money in the same way they can outside of the ISA. So, generically you would expect a lower rate because of that restriction.

Finally, cash ISAs in general tend to be smaller value but high volume. So, again,the additional costs are an issue and that will be reflected in the rate.

Personally, I believe the banks justification is not as strong as it was once for having a lower rate but you would still expect to see a lower rate, albeit a very small difference and not the difference you sometimes see still.

N1AK

jamesd wrote: »

I'm sympathetic to the pensioner argument. Perhaps that could be handled by allowing up to five years of unused cash ISA allowance to be used for a transfer to cash ISA from a pension pot's tax free lump sum. That could be all of the lump sum from £200,000 of pension pot, far larger than the average pension pot in the UK.

That was a great post jamesd. Well considered and laid out :T

Personally I don't agree with your solutions but they are much better than simply mergining the allowance. Someone who is claiming a pension would only pay tax on the interest if they were already pulling in enough income to take them into the tax bracket. If they are then they likely got rebated the tax when they invested in the pension in the first place, so I see no need to allow them to avoid it again.

N1AK

dunstonh wrote: »

Personally, I believe the banks justification is not as strong as it was once for having a lower rate but you would still expect to see a lower rate, albeit a very small difference and not the difference you sometimes see still.

On a 1 year fix you can get 3.1% ISA or 3.25% savings. Given that the 3.25% savings would lose 0.65% in lower rate tax or 1.3% on the higher rate it is still considerably better than a normal savings account for most.

Like most things, I would happily bet that far more money is squandered by people who don't pick the best ISA, check rates etc than because of the marginally lower ISA interest rates.

Finally it is also worth noting that the best 5 year fix ISA has the same rate as the best savings account; and even more notably the best 3 & 4 year ISA rates are better than equivalent savings accounts