Potential threat to annual £20k ISA limit?

poseidon1

https://www.resolutionfoundation.org/publications/ineffective-savings-accounts/

The Resolution Foundation published the above paper yesterday, criticising ISAs as failing in their objective to encourage saving by lower and middle earners, over the past 25 years.

Proposed measures include lowering the current £20k annual limit and a maximum  lifetime £100k cap on  subscriptions. The rationale is that ISAs are primarily exploited by the wealthy to the detriment of Exchequer, so by clawing back this tax benefit the tax revenues released can be redeployed in more effective ways to help/encourage lower earners to save. Certainly, the proposed £5k Brit ISA does seem rather nonsensical from the perspective of lower earners.

My own take on this is the general UK population propensity to spend rather than save is more a result of failing to tackle widespread financial literacy over the past couple of decades and a mindset that does not seem to view wealth building as a virtue.

That said, for many of the younger generation expensive housing ( to buy or rent), student debt and earnings which have not kept pace with inflation has meant that cohort have very little surplus to save for the future.

Whatever the reasons, a future Labour administration ( despite having originally introducing isas) may well consider the Foundation's ideas an attractive option to raise much needed tax revenues in years to come.

For now, and from an entirely selfish perspective, I will continue to load up on ISAs whilst this generous tax haven continues to exsist in its present form.

ColdIron

It's unlikely that they could do much about existing ISA holdings but they could stop it going forward (a very unpopular move all round). However if I was a young person I'd be a bit miffed, I would have one less opportunity to shelter my cash than my elders had. As I'm an older person I have sheltered quite a lot of it already so I'm alright Jack

It would almost certainly stoke up more intergenerational friction than already exists today

What Sir Humphry would call 'A courageous move Prime Minister'

poseidon1

ColdIron said:

It's unlikely that they could do much about existing ISA holdings but they could stop it going forward (a very unpopular move all round). However if I was a young person I'd be a bit miffed, I would have one less opportunity to shelter my cash than my elders had. As I'm an older person I have sheltered quite a lot of it already so I'm alright Jack

It would almost certainly stoke up more intergenerational friction than already exists today

What Sir Humphry would call 'A courageous move Prime Minister'

Agree your thoughts about existing ISAs likely remaining intact if future changes are implemented.

 Although I would like to think the younger generation would indeed be miffed at potentially  losing the same access we have enjoyed to date, if the youngsters around me are any guide they would be largely neutral on the subject, mostly because they are not even utilising LISAs which benefit from tax reliefs let alone the larger ISA allowance. 

boingy

Just another "think tank" rattling the cage, no doubt to press their own agenda. The world would be a better place without such organisations.

TheBanker

I doubt any government will be bold enough to actually cut the ISA allowance. What they'll likely do is just leave it at £20k so it becomes worth less over time due to inflation.

I suspect one reason ISAs aren't encouraging low earners to save is that until quite recently there was no need to use an ISA because the savings interest would likely fall within the Personal Savings Allowance. For a lot it still will. 

Ocelot

That's the same 'think tank' and even the same woman who posted the same thing about a year ago.

booneruk

Ocelot said:

That's the same 'think tank' and even the same woman who posted the same thing about a year ago.

We seem to be in a perpetual loop with things like this! Every budget we get the "Is the triple lock/IHT/ISA allowance etc to be axed".

It's best to ignore the noise and carry on sheltering from tax by whatever means fits your situation. Deal with future changes if and when they happen.

badmemory

Unless you had a lot of savings until the last couple of years ISA savings have been rather pointless.  You needed significant savings to warrant the interest being taxable.  So really their point was well pointless.  The current increase in interest rates however does change things in ISAs favour.  Now is becoming the time to use them again not remove them.

Section62

ColdIron said:

It's unlikely that they could do much about existing ISA holdings but they could stop it going forward (a very unpopular move all round). However if I was a young person I'd be a bit miffed, I would have one less opportunity to shelter my cash than my elders had. As I'm an older person I have sheltered quite a lot of it already so I'm alright Jack

It would almost certainly stoke up more intergenerational friction than already exists today

What Sir Humphry would call 'A courageous move Prime Minister'

There's also the issue that ISA's helpfully keep some people away from having to deal with HMRC on tricky matters like CGT.  Do away with ISA's and you potentially discourage some from investing in S&S, and perhaps more concerning to a government, you create additional work for the already struggling HMRC to deal with in order to generate a modest increase in tax take.

wmb194

badmemory said:

Unless you had a lot of savings until the last couple of years ISA savings have been rather pointless.  You needed significant savings to warrant the interest being taxable.  So really their point was well pointless.  The current increase in interest rates however does change things in ISAs favour.  Now is becoming the time to use them again not remove them.

A massive bonus with Isas is that there is no requirement for record keeping or reporting of income and gains. Even if you don't get close to filling them up every year this is a great boon.

Kaizen917

That report seems like a copy paste of last year's, from the same guys.The possible repeat is likely because they are getting concerned over the UK ISA adding a way for extra allowance.

Same as then however, the arguments against it are just a bit too much even if I can see the rationale for bring that up.