PSA and ISA allowance- time for gov change?

friolento

DietIrnBru said:

The rationale is there for the PSA being restored to £1000 for higher rate tax payers, it is bureaucratically inefficient. I’d like to see it restored to £1000 as it would comfortably remove any need for me to have a cash isa with inferior rates. I earn around 45000. 

I don't see where the problem is.

If you get more interest from an ISA than from a non-ISA after tax, you go for the ISA. Otherwise, you go for the non-ISA. You aren't forced into accepting "inferior" rates, unless I am missing something? 

If you are a HR taxpayer (which at 45K you are not) who has busted their PSA and gets 4% in an ISA, you would need to get more than 6.66% in a non-ISA account before you would make more money in a non-ISA. As there's presently no account into which you can dump £20k at 6.66%, the inferior ISA rate is actually a brilliant deal...... 

As a BR tax payer who has maxed their PSA, you would need to get 5% in a non-ISA account before the ISA becomes unattractive. Provided you are happy to lock up your money for a year or more, you can currently get such accounts. Whether it's a good idea to do so is a rather different question - - if there's a chance that you might end up in a higher tax bracket in the next few years, opting for an 'inferior'  ISA now may be the prudent thing to do. Another prudent thing to do might be to increase your works pension contributions, avoiding any savings/ISA dilemmas altogether.......

 

Ocelot

DietIrnBru said:

 £20000 for an ISA; £4000 for a LISA (additional tax relief); pension tax relief; dividend tax relief of £2000; PB’s. Only a very high net worth individual could ever hope to utilise all of it in a given year. 

Or someone who has 20k in taxable savings accounts, who puts it in ISAs when it matures, like me. I'm not a high net worth individual, although I might be if I put 20k of earned money that year into one.

boingy

DietIrnBru said:

The tax free regime in UK is excessive as it is for the average Joe. £20000 for an ISA; £4000 for a LISA (additional tax relief); pension tax relief; dividend tax relief of £2000; PB’s. Only a very high net worth individual could ever hope to utilise all of it in a given year. The resolution foundation said as much in January 2023. 

Plenty of "normal" people can find themselves in that situation in a tax year. You might be taking a 25% tax-free lump sum out of your pension. You might have been made redundant. Maybe you've inherited. Maybe it's a divorce settlement. Maybe you are downsizing to a smaller house, or have just sold a house and are going to rent for a while.

BTW, Resolution Foundation are a lobby group with their own agenda and their own axe to grind. These type of organisations call themselves "think-tanks" but they are best thought of as political pressure groups.

MK62

CompulsiveSaver said:

MK62 said:

It'd be a tough sell to justify raising PSA and ISA allowances while the personal allowance remains frozen.......

As I said above, it would benefit me so it would be easy to justify to me and millions of other savers... Any change will annoy someone, this one might be more likely to get a few more votes, and if not it this lot don't get back in then the other lot will have to deal with it!

......and a rise in the PA instead would benefit the majority of those millions of savers too......as well as the millions more who can't afford to save anything.....

Doctor_Who

DietIrnBru said:

The rationale is there for the PSA being restored to £1000 for higher rate tax payers, it is bureaucratically inefficient. I’d like to see it restored to £1000 as it would comfortably remove any need for me to have a cash isa with inferior rates. I earn around 45000. 

The tax free regime in UK is excessive as it is for the average Joe. £20000 for an ISA; £4000 for a LISA (additional tax relief); pension tax relief; dividend tax relief of £2000; PB’s. Only a very high net worth individual could ever hope to utilise all of it in a given year. The resolution foundation said as much in January 2023. Guess the only other tax dodger is the PM’s other half with the non Dom status. 

Not anymore, only £1000 allowance this tax year and £500 next tax year. CGT allowance also halved this tax year and will be halved again next tax year.

https://www.gov.uk/tax-on-dividends

PixelPound

CompulsiveSaver said:

Well since they have done such a dire job of controlling inflation.. yes, we know that Monetary policy is "allegedly" down to the BOE, but the government has done little (if anything) to reduce fiscal inflation that is within their control.

I think both PSA and ISA allowances should increase with inflation, mainly as it will be an incentive to keep inflation under control! (So don't say it is temporary when the MPC only looks at a one year time frame so it is inevitable things will fall out of their perspective after 12 months...), but then of course that would benefit me, which is the point of a question like this, your answer will be dependant to result on your finances!

Why should it? To allow those who save their money to keep more of it? Most people who max out their PSA & ISA allowances don't go "oh as I'm having to pay tax on anything else I'm going to spend it", no they look at other investment avenues, whether that be Premium bonds, S&S, etc. So all raising it does is shift the amount that's taxed into untaxed, it doesn't remove money out of the spending cycle.

PixelPound

jimjames said:

CaptainWales said:

Anybody else think that if the government really wants to encourage saving and lower inflation they should up the current PSA and ISA allowance? 

How can the average person earning £25k or so fill an ISA every year? I can't see any rationale for increasing the limits.

Isn't the average wage outside London supposed to be £33K?

Albermarle

nic_c said:

jimjames said:

CaptainWales said:

Anybody else think that if the government really wants to encourage saving and lower inflation they should up the current PSA and ISA allowance? 

How can the average person earning £25k or so fill an ISA every year? I can't see any rationale for increasing the limits.

Isn't the average wage outside London supposed to be £33K?

The problem is that there are three ways to calculate the average.

Mean average is everybody's salary added up and divided by the number of people. This is what probably gives the figure of 33K as it is skewed up by the Top 1 % of very high earners ( or even 0.1%)

Median average is if you lined everybody up in a row from low to high salary, it is the person in the middle. This gives a figure around £28K I think

Mode average is the salary that the largest number of people earn. This used to be in the low £20's but maybe has crept up to £25K with inflation, wage rises etc.

Albermarle

boingy said:

DietIrnBru said:

The tax free regime in UK is excessive as it is for the average Joe. £20000 for an ISA; £4000 for a LISA (additional tax relief); pension tax relief; dividend tax relief of £2000; PB’s. Only a very high net worth individual could ever hope to utilise all of it in a given year. The resolution foundation said as much in January 2023. 

Plenty of "normal" people can find themselves in that situation in a tax year. You might be taking a 25% tax-free lump sum out of your pension. You might have been made redundant. Maybe you've inherited. Maybe it's a divorce settlement. Maybe you are downsizing to a smaller house, or have just sold a house and are going to rent for a while.

BTW, Resolution Foundation are a lobby group with their own agenda and their own axe to grind. These type of organisations call themselves "think-tanks" but they are best thought of as political pressure groups.

It is true that the Resolution Foundation sees things from a certain angle, but some of their work is quite rigorous in their analysis.
Although these  tax breaks will help a lot of people to some extent ( although not the bottom 25%) , the majority of the cost to the Treasury comes from helping the already well off, particularly through higher rate tax tax relief on pension contributions, which costs Billions.

PixelPound

Albermarle said:

nic_c said:

jimjames said:

CaptainWales said:

Anybody else think that if the government really wants to encourage saving and lower inflation they should up the current PSA and ISA allowance? 

How can the average person earning £25k or so fill an ISA every year? I can't see any rationale for increasing the limits.

Isn't the average wage outside London supposed to be £33K?

The problem is that there are three ways to calculate the average.

Mean average is everybody's salary added up and divided by the number of people. This is what probably gives the figure of 33K as it is skewed up by the Top 1 % of very high earners ( or even 0.1%)

Median average is if you lined everybody up in a row from low to high salary, it is the person in the middle. This gives a figure around £28K I think

Mode average is the salary that the largest number of people earn. This used to be in the low £20's but maybe has crept up to £25K with inflation, wage rises etc.

Statista.com had £33k as median full time wage for 2022

Depends on whether you talk about average wage or average full time.

The median wage including those on less than full time is closer to £25k