Are ISA's under threat from Govt austerity measures?

RobStaffs

Listening to George Osborne today he stated that the further £10bn cuts on the welfare budget over the coming years would also be coupled with the "higher earners" paying more on tax etc. However he ruled out the mansion tax and one would assume the Tories will not raise the income tax %. He did make a statement that the Govt will come down hard on tax evasion and avoidance.I imagine this is hard to measure and not sure what the success rates are. The very richest have the best accountants after all

That just leaves ISA's. Is there any chance that this might become taxable, albeit at a lower rate?

kidmugsy

RobStaffs wrote: »

That just leaves ISA's. Is there any chance that this might become taxable, albeit at a lower rate?

It would surely be easier to scrap them? You'd just need to say "no new ones after 5/4/13". Or you could add that no existing ones may continue after 5/4/18 - that would let people with a 5 year term ISA finish without penalty.

Or you could continue the exemption from standard rate income tax but levy higher rate tax - which sounds trickier: HMRC couldn't want every ISA holder submitting a tax return.

Personally I'd be surprised if they fiddled with them. My track record isn't too bad - I had predicted that Index-linked Savings Certificates were such a good deal that HMG was bound to make them less attractive, or might even stop selling them. I wouldn't be surprised if they further restricted the ability to roll them over.

N1AK

RobStaffs wrote: »

That just leaves ISA's. Is there any chance that this might become taxable, albeit at a lower rate?

I'm really not sure whether ISAs will get reformed or not, though I doubt it will be this decade regardless. On the one hand the tax benefits of having used your maximum allowance are growing rapidly and could already be worth nearly £1000pa to a higher rate tax payer just for the cash allowance. On the other hand that's not a huge difference, could likely be dodged for most people easily and they are popular.

The risk of S&S ISAs could be said to be even less pressing. Avoiding CGT on the kinds of values most people have in ISAs is pretty trivial unless you need to take out a vast amount, don't manage it or have large stock holdings that you trade outside the ISA.

If anything my biggest issue with ISAs is that the yearly allowance penalises those on lower incomes (who are more likely to be unable to use each years allowance). I would like to see the government 'reserve' up to, for example, 2-4 years allowance for people who haven't used it but potentially slow the increase in the allowance for a couple of years to keep the total amount going in about the same.

grey_gym_sock

no, osborne is lying. he is saying he plans to make higher earners to pay more, and that he'll clamp down on evasion and avoidance, precisely because he doesn't plan to. austerity is for the poor and the middle, not the rich.

(sorry if the above is too political. just trying to answer the question.)

jimjames

I can see the possibility of limiting it to a certain total rather than just allowing the annual allowance to be added indefinitely. Unless it was based on total contributions I'm not sure how that would work for S&S ISAs.

newfoundglory

I can't see anything happening to ISA's.

Because - you would not be encouraging people to save.

Under Labour, having savings didn't pay (because if you lost your job - no benefits for you!)

However, under the conservative govt, and with benefits going away - I guess savings would be good thing.

Tax rules might change in future, but I doubt it would impact EXISTING cash and stocks.

Even if you had 50 grand in cash isas, at current interest rates, a basic rate taxpayer would only owe HMRC an extra £250 to £300 per year - hardly worth it IMHO.

I reckon the government could make a lot more money by encouraging people to put their money in higher paying accounts. For example - someone has 10 grand invested at 0.10%, as a basic tax payer you earn £8 a year, government earns £2 per year. Get it in a 2% account, you get £160, government gets £40. Everybody is a winner!

wakeupalarm

ISA's will be safe because the banks and building societies are offering lower rates then their normal accounts so in effect pocketing the tax-free element. It's all smoke and mirrors.

lisyloo

That just leaves ISA's.

No it doesn't.

What about 40% tax relief on pension contributions?
What about 25% tax free lump sum from pensions?

I'd say these are much morelikely to be targets than ISAs.

psychic_teabag

wakeupalarm wrote: »

ISA's will be safe because the banks and building societies are offering lower rates then their normal accounts so in effect pocketing the tax-free element. It's all smoke and mirrors.

From a quick survey, it looks like the best ISA and non-ISA rates are pretty much comparable across the range of account types. I don't know how rates compare within one provider, though.

dunstonh

That just leaves ISA's.

EIS, VCT, Premium Bonds, Index linked certs, the ability to defer tax on investment bonds, pensions and others.

ISA is not the only tax free or tax efficient vehicle.

RobStaffs

I completley forgot about pensions.Maybe this is linked to the new employer pension contribution guidelines.Giveth and taketh away. Lots to ponder. One would imagine company cars will also be targeted.

Would it be a sensible approach to max your ISA allowances and pension contributions over the next two years? .