Proposed £100k ISA lifetime limit

MarcoM

eskbanker said:

Thread title is unnecessarily clickbaity IMHO - as far as I can see there's no suggestion that the government is taking any notice of a report from a think-tank, so 'proposed' doesn't actually signify any likelihood of this independent suggestion being implemented as such....

Hello esbanker,

You don't think a future labout government would not consider the ISA reduction?

MarcoM

masonic said:

In practice this would be a complete nightmare to implement. ISA allowance is effectively dependent on the total you have saved and invested across the ISAs you hold, which for many people will fluctuate from one day to the next. HMRC isn't going to be able to collate data until well into the following tax year in order to notify people they no longer have an ISA allowance for that year. At least the report rightly highlights that any action taken would disproportionately affect older generations using them in retirement. Probably a suggestion to put in the same category as means-testing the state pension.

masonic said:

In practice this would be a complete nightmare to implement. ISA allowance is effectively dependent on the total you have saved and invested across the ISAs you hold, which for many people will fluctuate from one day to the next. HMRC isn't going to be able to collate data until well into the following tax year in order to notify people they no longer have an ISA allowance for that year. At least the report rightly highlights that any action taken would disproportionately affect older generations using them in retirement. Probably a suggestion to put in the same category as means-testing the state pension.

Hello Masonic,

do you think that one the basis of HMRC's inability to collect data a wealth tax would also be unlikely?

I would be interested to know your opinion on this.

Band7

jimjames said:

 the limit of £20k per year does seem pretty generous in comparison to other countries.

This is true - though I am not sure it's very meaningful to pick a single element of our life and compare that with other countries. We should first compare how things are within our own country - a bit like RF have done in their report. There are clearly big differences, as the report shows. I don't, however, agree with their conclusions, mainly for the reasons others have posted in this thread.

Qyburn

I wonder what percentage of the adult population are able to make £20K contributions into their ISAs, after living costs and pension contributions. I can't see how that is not disproportionately beneficial to the better off.

As one of these myself I guess my view would depend on how the "limit" was used. If you were no longer allowed to contribute once your total ISA value exceeds £100K then I can't see that would be grossly unfair. Penalising balances accumulated under the rules in force at the time, doesn't seem right as that would be applying the change retrospectively.

I wouldn't argue against reducing the annual contribution limit.

Albermarle

Qyburn said:

I wonder what percentage of the adult population are able to make £20K contributions into their ISAs, after living costs and pension contributions. I can't see how that is not disproportionately beneficial to the better off.

As one of these myself I guess my view would depend on how the "limit" was used. If you were no longer allowed to contribute once your total ISA value exceeds £100K then I can't see that would be grossly unfair. Penalising balances accumulated under the rules in force at the time, doesn't seem right as that would be applying the change retrospectively.

I wouldn't argue against reducing the annual contribution limit.

As above, ISA's do proportionately benefit the better off, as they have the money to take better advantage of the tax break. Same with pension tax relief.
I am not saying either should necessarily being curtailed ( personally having taken advantage of them) but ISA's in particular have no benefit at all for the high % of people who have no , or little savings.

Band7

Albermarle said:

As above, ISA's do proportionately benefit the better off, as they have the money to take better advantage of the tax break. Same with pension tax relief.
I am not saying either should necessarily being curtailed ( personally having taken advantage of them) but ISA's in particular have no benefit at all for the high % of people who have no , or little savings.

Now that pension tax relief has been mentioned: I believe this costs the Treasury some £42 billion annually. If that were reduced (e.g. by setting tax relief at 25% for all), it would make a substantial sum of money available for other matters. Such an adjustment of pension tax relief can easily be implemented technically, and would probably encourage more people to put more money into a pension. It would also make the [unrealistic] £1bn savings from tinkering with ISAs disappear into insignificance. Of course it wouldn't be a wildly popular move, either, but we need to get to grips with the fact that some unpopular moves are now unavoidable.

coastline

Quick calculation and £250 a month x 20 years x 5% = £103,000.?  Not exactly out of reach for millions of savers. The government have encouraged saving in recent years with pensions and others. ISA's aren't exempt from IHTax ? That's taxed at 40% over the allowance. Just as well it's a think tank.

InvesterJones

It's a suggested action to try and tackle wealth inequality - which is based on the idea that societies are better if there is less wealth inequality and therefore some measure of wealth redistribution is needed. Taxes are the primary mechanism for this redistribution, therefore progressive taxes are of interest so that you maximise wealth redistribution while aiming to minimise negative effect on wealth generation.

It's not by any means the accepted route forward by government - quite the opposite in fact, especially if you believe in Trussonomics.

Means-tested pensions and wealth taxes are probably more direct routes to wealth redistribution, but they're politically unpalatable, so the next best thing is reduced tax-relief, which in the minds of politicians achieves the same thing as increased tax without jane public noticing, see also fiscal drag.

mebu60

My bad for the 'clickbait' headline, if it looks like a proposal, is put forward as a proposal and smells like a proposal then clearly it's a suggestion, silly me!
General feedback is as expected and consistent with my initial thoughts but I also agree with billy2shots, there is a lot of resentment around waiting to be weaponised for political purposes, we can expect more attacks on 'lucky' older savers.
I expect that the £20k ISA allowance will be maintained at that level in the short term until someone wants a dramatic gesture to show they're 'listening' and reduces it. 
You'd think with the experience and unintended consequences from the pensions LTA let alone the complete impracticality of such a move for ISAs that it'd be instantly dismissed as flawed but 'we' on this board need to keep in mind that 'we' are easy targets, if only for headline grabbing.

EthicsGradient

Well, yes, it is just a suggestion from a think tank, and it would be a lot more helpful if the opening post made that clear.

Half of the paper is about increasing Help To Save, but that's got lost in the talk about the suggestion on how to pay for that, with the ISA restriction.

I don't think it's a great idea, though the ISA rules have been generous to the rich (and that includes me) over the years - getting a tax break on saving two thirds of the median income is pretty nice. Not many people can afford to put that much aside, year after year, so maybe that should have been lower (£5k? £10k?), and could be lower in the future. But the practicalities of implementing a limit of the total worth now look tough, and £100k seems fairly low for something that might have been built up over 25 years. I saw a suggestion that maybe a combined limit for the pension lifetime allowance and ISAs might be "fair" - if you've got a lot in both, you don't need the tax breaks.