Potential threat to annual £20k ISA limit?

Kim_13

I do think it ought to change, as being able to save more tax free than you can earn tax free (presumably on the basis that you shouldn't have to pay a penny in direct taxes until you can support a basic existence for yourself) is lunacy.

I wouldn't criticise a lowering of the annual ISA allowance even to as low as £6K - that still means you can save £500 per month free of tax, plus extra if you have PSA, starter savings rate or unused personal allowance available. I won't go into exactly where I would set the Personal Allowance and ISA limit as that starts to get too political. 

I have more of an issue with a £100K lifetime cap - many more are going to get there (even if only after inheriting part of it) than will hit the current annual allowance - a fifth of the proposed lifetime limit. The average person could probably save in excess of £100K in their lifetime, so such a cap seems that it would punish the prudent as well as capturing those better off than them.

I like to use ISAs even when I wouldn't pay tax on the interest, due to the safety net of being able to get at the funds in an emergency or if it would be advantageous to take the penalty and exit to another account. While some providers have introduced savings promises to cover the former these could easily be withdrawn whereas access to ISA monies is protected by the ISA rules. It's just not worth the risk to me of locking away money which would preclude access to benefits, yet not being able to access said capital were such a situation to arise.

EthicsGradient

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.

Since the introduction of the PSA of £1,000/£500 since April 2016, perhaps - 2% (looking back at ancient MSE threads) was available for fixed term accounts then, so from then, you'd need £25,000 to exceed the higher rate amount. But before then, all interest was taxable (and taxed at source, unless you filled in the form to say you didn't have the income for the interest to be paying tax), so cash ISAs were worth considering for a lot of people.

But if you regard £25,000 (in 2016, admittedly) as "a lot of savings", then this paper is not about "removing" them, but restricting them - to a point well above what you see as a lot.

Albermarle

The Resolution foundation has its own agenda, which is mainly focusing on issues that they think will benefit lower earners. Obviously not everybody will agree with everything they say but certain points are difficult to argue with, such as this one.

ISAs are primarily exploited by the wealthy.( Perhaps for wealthy you could substitute the top 20% and/or people more likely to vote) Also this allowance is already very generous by international standards.

Although your average person could no more save £20K pa, than fly to the moon.

Having said that I can not see a Labour government touching them, although I guess the annual limit will remain stuck at £20K for a long time yet. A kind of fiscal drag I guess.

jimexbox

First rule of politics is not enact policy that will only lose you votes. Nobody is writing to their MP's and marching on Downing Street demanding ISA's are curtailed. Its a none issue. There is absolutely zero chance of any major change in current ISA legislation. 

ZeroSum

You can't introduce a lifetime limit of £100k when ISA's have been around for 25 years, with many people accumulating much more than that. So it  then becomes a retrospective penalisation.
What you'd need to do, is stop new isa subscriptions but allow existing isas to grow, then create a new scheme with these proposed limits

InvesterJones

Yeah I can't see any government doing this, especially not Labour, and if the Conservatives wanted to they probably had a better chance a while back. There are more direct routes to target the wealthy if that's the main consideration (increase CGT and dividend tax to match income tax, increase inheritance tax further, increase additional tax rate, add a wealth tax etc. etc.)

Kim_13

jimexbox said:

First rule of politics is not enact policy that will only lose you votes. Nobody is writing to their MP's and marching on Downing Street demanding ISA's are curtailed. Its a none issue. There is absolutely zero chance of any major change in current ISA legislation. 

Unless of course it would pay for the personal allowance to be increased, as it's the cost of that that has meant NI being reduced twice instead when the first didn't shift the polls (which doesn't benefit many of their core voters, who might then stay at home at the next election feeling that their votes are being taken for granted.)

A lifetime cap won't win votes, but other changes could.

gt94sss2

InvesterJones said:

Yeah I can't see any government doing this, especially not Labour, and if the Conservatives wanted to they probably had a better chance a while back. 

It would be easy for any govt to do, especially if they do it in their first budget after winning an election. 

Most will have forgotten about the change by the time the next election comes around and even if they do, it is unlikely to determine how they vote. 

The current govt have already cut the CGT allowance and the amount of dividends you can get before paying tax.. 

gravel_2

This is the same think tank they always roll out to talk against ISAs. Last year they suggested ISA benefit should be capped at 100k. Tories won't listen to them. Open question on whether they have any sway over Starmer. I think it would be a massively negative policy among the public and industry to diminish ISAs from their present position.

The examples given seem quite selective. I realise there must be a not insignificant number of people on low earnings but using £10,000 p/a as an example isn't particularly relatable. I'm surprised people have any savings at that level, and it's actually quite impressive if they have manages to scrape together £5k in an an ISA on average...

I expect if Labour get in the BritISA will die and the ISA allowance will stay static for the next 5+ years. I'm not convinced there's a strong argument to increase it anyway.

Albermarle

InvesterJones said:

Yeah I can't see any government doing this, especially not Labour, and if the Conservatives wanted to they probably had a better chance a while back. There are more direct routes to target the wealthy if that's the main consideration (increase CGT and dividend tax to match income tax, increase inheritance tax further, increase additional tax rate, add a wealth tax etc. etc.)

The generous tax regime around death benefits for DC pension pots, could also come under scrutiny. Especially for larger ones.