Could the government raise the limit for tax free savings?

Albermarle

subjecttocontract said:

Why ISA interest rates are lower is one of the mysteries of modern life. Just like the question, why is diesel more expensive than petrol in the UK ?

I am not sure why it is traditionally a few pence per litre more expensive, but the current 20p gap is all down to Ukraine war and the sanctions on Russia. Most of our unleaded petrol is refined from crude oil in the UK, but we used to import 20% of our diesel from Russia, so the supply is tight and presumably we have to buy the shortfall at elevated prices from other countries .

Daliah

Ultrasonic said:

cricidmuslibale said:

Albermarle said:

AIUI, the UK Has some of the better tax breaks in the world for savings already. Being able to shelter £20K a year in an ISA would be a dream for most Europeans at least.

The crucial issue with this is that interest rates on cash ISAs, both fixed and easy access, tend to be c 20 - 25 percent lower than the equivalent non ISA accounts, thus negating any tax saving you would otherwise and really probably should obtain!

Whilst I know it's been true for a long time now, I'm curious why it is that ISA saving rates tend to be lower if anyone knows?

Checking today though out of interest for myself, I make it that it's currently better for basic rate taxpayers to make use of ISAs (although not by a huge amount).

The top paying 1 year fixes pay 3.90% for the ISA and 4.52% for the normal fix (reduced to effectively 3.62% once 20% tax paid).
The top paying 2 year fixes pay 4.30% for the ISA and 4.77% for the normal fix (reduced to effectively 3.82% once 20% tax paid).

The argument for ISAs is of course much more clear-cut for higher rate tax payers.

You can't simply look at the rates to determine whether ISA or non-ISA is the better deal. You have to factor in the Personal Savings Allowance. Depending on the amount of interest involved, a BR tax payer may still be better off with a non-ISA account, even if the rate on that account is less than 20% higher than the best ISA rate they can get.

Agree that, at present rates, it's almost a no-brainer for an HR tax payer to pick the ISA.

Ultrasonic

Daliah said:

Ultrasonic said:

cricidmuslibale said:

Albermarle said:

AIUI, the UK Has some of the better tax breaks in the world for savings already. Being able to shelter £20K a year in an ISA would be a dream for most Europeans at least.

The crucial issue with this is that interest rates on cash ISAs, both fixed and easy access, tend to be c 20 - 25 percent lower than the equivalent non ISA accounts, thus negating any tax saving you would otherwise and really probably should obtain!

Whilst I know it's been true for a long time now, I'm curious why it is that ISA saving rates tend to be lower if anyone knows?

Checking today though out of interest for myself, I make it that it's currently better for basic rate taxpayers to make use of ISAs (although not by a huge amount).

The top paying 1 year fixes pay 3.90% for the ISA and 4.52% for the normal fix (reduced to effectively 3.62% once 20% tax paid).
The top paying 2 year fixes pay 4.30% for the ISA and 4.77% for the normal fix (reduced to effectively 3.82% once 20% tax paid).

The argument for ISAs is of course much more clear-cut for higher rate tax payers.

You can't simply look at the rates to determine whether ISA or non-ISA is the better deal. You have to factor in the Personal Savings Allowance. Depending on the amount of interest involved, a BR tax payer may still be better off with a non-ISA account, even if the rate on that account is less than 20% higher than the best ISA rate they can get.

Agree that, at present rates, it's almost a no-brainer for an HR tax payer to pick the ISA.

Sorry, yes, I was of course doing the sums there for those who had maxed out the benefit of their PSA but you are right to highlight the distinction.

(The post I quoted was referring to the tax saving so I had taken this as my starting point.)

theGrinch

Maybe but unlikely. They need to raise revenue and encourage spending not thrift

sevenhills

masonic said:

Most of us this side of the pond wouldn't be in favour of adopting the US system of healthcare etc in exchange for lower taxation (at least I wouldn't). Though I do agree with you that the spectre of Austerity II would be taking things too far in the opposite direction.

Health care in the USA cost significantly more and gives a poor service.

Albermarle

sevenhills said:

masonic said:

Most of us this side of the pond wouldn't be in favour of adopting the US system of healthcare etc in exchange for lower taxation (at least I wouldn't). Though I do agree with you that the spectre of Austerity II would be taking things too far in the opposite direction.

Health care in the USA cost significantly more and gives a poor service, especially to the poor.

Slight amendment

hoc

Albermarle said:

Millyonare said:

UK tax is only trending in one direction, and that's up. It's not coming down. That would seem to be correct

We've had a decade of red Tories and taxes have soared to a record high (outside war). Not correct, the current tax burden of 33/34% has been similar for the last 20 years and is lower than when it peaked in the 1970's The current round of increases will take us to about that level though ( 35%) once they kick in .Recent attempts to cut tax have been howled down by the hysterical media. The UK is the only G7 economy spiking major taxes after the pandemic. We've got a decade of red Labour coming up after the next election and they love to tax and spend other people's money. We are trapped in a Marxist taxation loop.

It is thus more likely the future tax-free savings limit will be reduced or scrapped, not raised.

I also expect future private-pension taxes to be increased, and saving limits decreased.

The days of a low tax burden are all but over. Not really surprising after Covid.  Money does not grow on trees as Liz soon found out "

Dyor, etc.

Chart: UK tax burden to hit highest level since the 60s | Statista

Although a tax burden of 35% is relatively high in global terms, it is still below many other Western European countries.
Germany 37.5%
Italy 42.5%
Sweden & Belgium 44%
France and Denmark 46%

You have to factor in the 'rip off Britain' effect. Residents of those countries receive far more and better quality services for the money whether it's unemployment support, health care, education or infrastructure. Some of these are hard to compare, others aren't. State pensions are an easy one to compare looking and what you pay in and what you get out, the UK has one of the worst state pensions in the world in terms of value to contribution. Other than the NHS, the UK tax payer doesn't get much more than a US tax payer. As the NHS and conditions generally in the UK continue to decline, the UK looks increasingly like a European 'socialist' country when it comes to collecting taxes and an American 'capitalist' country when it comes to spending.

Daliah

hoc said:

You have to factor in the 'rip off Britain' effect. Residents of those countries receive far more and better quality services for the money whether it's unemployment support, health care, education or infrastructure. Some of these are hard to compare, others aren't. State pensions are an easy one to compare looking and what you pay in and what you get out, the UK has one of the worst state pensions in the world in terms of value to contribution. Other than the NHS, the UK tax payer doesn't get much more than a US tax payer. As the NHS and conditions generally in the UK continue to decline, the UK looks increasingly like a European 'socialist' country when it comes to collecting taxes and an American 'capitalist' country when it comes to spending.

Some comparisons are fiendishly difficult to make. A prime example are state pensions because there are no two countries with the same approach to it. The UK state pension is not based on how much you contributed, whilst in some other countries, it is totally dependent on how much you contributed. In the UK, pensioners do not pay for health care, whilst in some other countries, pensioners must pay a compulsory health insurance, which can be as much as 14% of total income. Some countries even have a social care levy that all adults, including pensioners, must pay.  Furthermore, taxation rules differ - not many countries have a generous £12,570 personal tax allowance, or have ISAs for tax-free savings and investments. One country I know of charges childless pensioners a 0.35% tax. Bus passes and winter fuel allowance for pensioners seem to be a very British thing, too. Many European countries don't have generous tax allowances for savings and investments into personal pensions, and have much more focus on state pensions than the UK has. Cost of living, housing etc also varies widely. In the light of all this, it is largely meaningless to compare state pension amounts.

I also disagree that UK state pension is bad value in terms of contribution.  It's important to understand that NI contributions are a tax, not a savings or investment scheme. To start with, 20% of NI contributions go directly to the NHS budget. The other 80% pay the state pensions of existing state pensioners. Most of the population would not be able to accrue enough to buy an annuity that pays them and index-linked £180 or thereabouts a week for the rest of their days. Each year, millions of people pay no contributions at all because they are carers, ill, disable, out of work etc - yet our social security system ensures they still get NI years for their time of economic inactivity or unemployment (NI years are the detemining factor for the amount of state pension we get). I appreciate that there are people who pay a lot more in NI than others, yet don't get a higher state pension. But that is what a grown-up social security system looks like - those that have lots support those that don't have so much. IMO, we can be proud that we have a system of wealth distribution where people don't need to fear they end up in poorhouses in their old age, like some of them did before the 1946 Pension Act.

For the avoidance of doubt: I am aware that around 18% of UK pensioners live in poverty but this is generally not due to deficiencies in our state pension system. It's more to do with gender discrimination and also lack of education.

Millyonare

masonic said:

Millyonare said:

The US tax burden is only 28%, its GDP per-head is 2 x higher than the EU, and much higher than Germany, Italy, etc. Measured by wealth per-head, the chasm is yawning, the US is around 30-300% higher than Sweden, Germany, etc. The US is a significantly richer country and union.

Most of us this side of the pond wouldn't be in favour of adopting the US system of healthcare etc in exchange for lower taxation (at least I wouldn't). Though I do agree with you that the spectre of Austerity II would be taking things too far in the opposite direction.

Err, the UK has a staggering 7 million people on NHS waiting lists of up to several years. That is more than the entire population of Ireland. The average wait time is an incredible 3 months. Three months. Some 3 million people are waiting over 4 months. If you lined up those 7 million head-to-toe, the line (queue) would stretch from London to the Falkland Islands. The NHS is among the worst healthcare systems in the industrialized world. The idea that we should be sneering at the US system is quite bizarre.

arnoldy

masonic said:

Millyonare said:

The US tax burden is only 28%, its GDP per-head is 2 x higher than the EU, and much higher than Germany, Italy, etc. Measured by wealth per-head, the chasm is yawning, the US is around 30-300% higher than Sweden, Germany, etc. The US is a significantly richer country and union.

Most of us this side of the pond wouldn't be in favour of adopting the US system of healthcare etc in exchange for lower taxation (at least I wouldn't). Though I do agree with you that the spectre of Austerity II would be taking things too far in the opposite direction.

Equally no country has been foolish enough to adopt the NHS system. Both US health care and NHS are not very good to put it mildly; the German insurance and co-pay system is far superior when you look at the data. Most European countries have a version of the German system.