Potential threat to annual £20k ISA limit?

Kim_13

I can see some logic in Brit ISAs - very simply if the exchequer simplify and say people maxing their existing ISA allowance = rich then it makes sense only to give a further tax advantage if that generates investment in this country (in the hopes that those that will benefit from the tax wrapper will vote for them even as lower rates of CGT and Dividend allowances have made them worse off) and those that won't will at least view it as patriotic/good for the country as a whole if more money is invested here and it won't lose them any more votes.

Logical, but I can't imagine they'll take off. Either Labour get in and axing it is the first thing they do ISA wise, or they are introduced as scheduled and they're an administrative nightmare for providers and a limited number of providers offer them (and it's more extreme than LISAs were, offered by relatively few compared to Cash ISAs and S&S ISAs which are available from pretty much every provider that you would think might offer them.)

I suspect a proportion maxing their ISA in any one year are doing so in response to a one off event and won't have so much spare cash again / sheltering existing funds from tax in response to having to pay tax on their savings for the first time in a while, rather than saving 20K out of their earnings every year.

jimexbox

Kim_13 said:

I suspect a proportion maxing their ISA in any one year are doing so in response to a one off event and won't have so much spare cash again / sheltering existing funds from tax in response to having to pay tax on their savings for the first time in a while, rather than saving 20K out of their earnings every year.

Indeed, I only know one person maxing their isa through yearly earnings, they already pay a vast amount of tax. Others I know have maxed isa's using redundancy payments or inheritance.

Let's remember savers have earned next to nothing for over a decade. Rates rise and it's now 'unfair' that folk can shelter cash from further taxation. 

poseidon1

jimexbox said:

Kim_13 said:

I suspect a proportion maxing their ISA in any one year are doing so in response to a one off event and won't have so much spare cash again / sheltering existing funds from tax in response to having to pay tax on their savings for the first time in a while, rather than saving 20K out of their earnings every year.

Indeed, I only know one person maxing their isa through yearly earnings, they already pay a vast amount of tax. Others I know have maxed isa's using redundancy payments or inheritance.

Let's remember savers have earned next to nothing for over a decade. Rates rise and it's now 'unfair' that folk can shelter cash from further taxation. 

I suspect there are an appreciable number of 'Boomer' forum contributors who have indeed been maximising ISA contributions annually and not relying on inheritances and redundancy payouts to do so.

Those with mature investment portfolios will have been moving taxable stocks and shares into the valuable shelter of isas each year, and will have been able to substantially beat historic low returns on cash by investing in higher yielding bonds, pibs, high yield shares and the like ( 6 - 7% income yields from these sources was comfortably achievable - those yields a bit higher now).

They will now be joined by many cash savers receiving attractive returns on safer cash isas, and so collectively  resulting in the £6.7 billion loss of tax revenue to the Exchequer identified by the Foundation for 2023/24 ( up from £4.9 billion in the prior year ). 

It is this rising loss of tax to the Exchequer, which will be of some concern to a future (Labour?) government who are likely to weigh the benefits of retaining the current system against the growing hole in the nation's finances (the burgeoning cost of the state pension may prove  a contributing consideration). I would not be so complacent of them leaving things well alone in such circumstances.

badmemory

jimexbox said:

Indeed, I only know one person maxing their isa through yearly earnings, they already pay a vast amount of tax. Others I know have maxed isa's using redundancy payments or inheritance.

Let's remember savers have earned next to nothing for over a decade. Rates rise and it's now 'unfair' that folk can shelter cash from further taxation. 

My ISAs mostly come from an inheritance which for most of the time has had really bad rates & ordinary savings rates were slightly better & I didn't have much choice but to take advantage of them.  I cannot be the only one that is relying on those ISAs to fund any care needs I may have in the (probably not to distant) future.  Just to help the state pension which until the last couple of years was paying for the day to day is no longer doing that solely due to cost of living increases.  I am certainly not rich, in fact my income is quite a bit less than minimum wage but thankfully I don't have rent or mortgage to pay.  So it isn't just the rich who are using ISAs.

jimexbox

poseidon1 said:

jimexbox said:

Kim_13 said:

I suspect a proportion maxing their ISA in any one year are doing so in response to a one off event and won't have so much spare cash again / sheltering existing funds from tax in response to having to pay tax on their savings for the first time in a while, rather than saving 20K out of their earnings every year.

Indeed, I only know one person maxing their isa through yearly earnings, they already pay a vast amount of tax. Others I know have maxed isa's using redundancy payments or inheritance.

Let's remember savers have earned next to nothing for over a decade. Rates rise and it's now 'unfair' that folk can shelter cash from further taxation. 

It is this rising loss of tax to the Exchequer, which will be of some concern to a future (Labour?) government who are likely to weigh the benefits of retaining the current system against the growing hole in the nation's finances (the burgeoning cost of the state pension may prove  a contributing consideration). I would not be so complacent of them leaving things well alone in such circumstances.

It's only a loss to the exchequer if you start from a position that your money isn't your own. My money is mine, it's already been taxed. 

Rich2808

We are likely to have a different party in government by the end of the year. I have no idea what Labour's plans are on ISAs or savings but I would expect them to make some changes. So we will have to wait and see.

Nothing is going to change before April next year anyway!

masonic

jimexbox said:

poseidon1 said:

jimexbox said:

Kim_13 said:

I suspect a proportion maxing their ISA in any one year are doing so in response to a one off event and won't have so much spare cash again / sheltering existing funds from tax in response to having to pay tax on their savings for the first time in a while, rather than saving 20K out of their earnings every year.

Indeed, I only know one person maxing their isa through yearly earnings, they already pay a vast amount of tax. Others I know have maxed isa's using redundancy payments or inheritance.

Let's remember savers have earned next to nothing for over a decade. Rates rise and it's now 'unfair' that folk can shelter cash from further taxation. 

It is this rising loss of tax to the Exchequer, which will be of some concern to a future (Labour?) government who are likely to weigh the benefits of retaining the current system against the growing hole in the nation's finances (the burgeoning cost of the state pension may prove  a contributing consideration). I would not be so complacent of them leaving things well alone in such circumstances.

It's only a loss to the exchequer if you start from a position that your money isn't your own. My money is mine, it's already been taxed. 

The interest you receive won't have already been taxed.

Hoenir

gt94sss2 said:

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. 

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

Only on assets held outside pension plans and ISA's. There's arguably adequate tax free routes options available. Everyone was happy to benefit from the free Covid and Energy scheme handouts. Now it's time to start paying the bills. Shock horror magic money trees don't actually exist.  

MX5huggy

Rich2808 said:

We are likely to have a different party in government by the end of the year. I have no idea what Labour's plans are on ISAs or savings but I would expect them to make some changes. So we will have to wait and see.

Nothing is going to change before April next year anyway!

Labour should double the Premium Bond “allowance” and put the funds generated into their proposed Sovereign Wealth Fund. https://www.independent.co.uk/news/uk/labour-rachel-reeves-labour-party-mark-carney-barclays-b2510099.html

EthicsGradient

Maybe it's worth pointing out that, despite what the thread title and OP says, the article does not suggest lowering the annual allowance - the closest it gets to that is "it is difficult to justify such a generous annual allowance, let alone advocate for further increases". It's really saying the "UK ISA" would, they reckon, be pointless:

The Government appears to be doubling down on these tax breaks by announcing the introduction of the ‘UK ISA’ at the Spring Budget. This new product would have its own £5,000 annual allowance in addition to the existing £20,000 annual ISA allowance. The rationale behind this is to provide individual investors with an additional opportunity to save while also addressing the UK’s low business investment performance. In practice, the new UK ISA and additional £5000 allowance only matters for those that have more than £20,000 a year to save. Given that very few people do max out their ISA allowance, the new UK ISA is unlikely to attract substantial amounts of additional investment, meaning that it won’t shift the dial on aggregate saving.

From today, ISAs have been available for 25 years, but they have done little to address the problem of low savings in Britain, with as many as 1-in-3 (30 per cent) of working-age adults living in families with savings below £1,000. For this reason, we have previously made the case that ISAs should at least be capped at £100,000. The tax revenue raised from such a policy could be spent on expanding Help to Save – a saving policy specifically targeted at low income families. More recently we have shown that ‘behavioural’ interventions are much more effective at boosting saving, with the most obvious example being pensions auto-enrolment. This suggests that getting serious about addressing the UK’s low savings problem means shifting the policy emphasis away from financial incentives and putting behavioural framing at the heart of the strategy. With this in mind, we have previously outlined how a more cohesive and flexible savings policy framework could increase saving for precautionary and retirement purposes. This will involve expanding pensions auto-enrolment while allowing for some degree of flexibility around pension savings to help meet precautionary needs during working life. Getting serious about boosting the chronic lack of UK household saving means being creative about how we design saving incentives rather than bolting new gimmicks onto the ISA system.