Government aiming to make £605m in tax revenue purely from ISAs....

solidpro

I saw someone discussing the actual 2024 budget document, which says virtually nothing about ISAs, other than freezing the rules until 2030. And yet in the 'repairing the public finances' section, point 31, it shows £605m in tax revenue from 'savings - ISAs and CTFs', by 2030.

His interpretation was that this was by freezing the £20k annual limit until 2030, which was last increased in 2017, the 2017 £20k allowance is, by 2030 worth only about £14k, and that 'extra' 6k (in 2017 terms) would have to go elsewhere - unwrapped investments which incur more tax.

Is this a good assumption? Seems odd that if this was the case, they shows the revenued earned in 2024-26 as £0. Where else would this £605m in ISA and CTF 'tax revenue' come from?

dunstonh

Fiscal drag is often used in figures. In some areas it makes sense to consider fiscal drag but in others there is less sense.

Personally, I am not so sure fiscal drag reporting works as well with contribution allowances as you would have to assume that everyone putting into an ISA is maximising the allowance each and every year.  

And even with fiscal drag, most people can put around £50k into a GIA and suffer no taxation.   So, if more people use a GIA, it doesn't necessarily result in more tax from all of them.

Albermarle

Some 'smoke and mirrors' I think !

slinger2

And of course this is an annual allowance. Even with a frozen allowance the total amount held in ISAs continues to go up and up. Well over half is now in S&S ISAs, which have generally done better than Cash ISAs in recent years.

Ivkoto

solidpro said:

I saw someone discussing the actual 2024 budget document, which says virtually nothing about ISAs, other than freezing the rules until 2030. And yet in the 'repairing the public finances' section, point 31, it shows £605m in tax revenue from 'savings - ISAs and CTFs', by 2030.

His interpretation was that this was by freezing the £20k annual limit until 2030, which was last increased in 2017, the 2017 £20k allowance is, by 2030 worth only about £14k, and that 'extra' 6k (in 2017 terms) would have to go elsewhere - unwrapped investments which incur more tax.

Is this a good assumption? Seems odd that if this was the case, they shows the revenued earned in 2024-26 as £0. Where else would this £605m in ISA and CTF 'tax revenue' come from?

This ⬇️ is the actual video if someone want to watch it 


https://youtu.be/5u75ouA1Q64?si=x8lPCWPD2GD3ZUiA

solidpro

Yeah, I know nothing about the guy - it just popped up so I didn't want to share what could be naive/fake news. It was an interesting point though. Is it the case that a lot of government projections have to 'find' £bns in their projections and the easiest ways to guess without being 'found out' is to throw £600m projection here and there and hope nobody notices? 

Is there any chance they'll suddenly announce a goal to start to put CGT on 'profits' from S&S ISAs?

SnowMan

There was a big increase in the ISA allowance from £15,240 in 2016/2017 to £20,000 in 2017/2018. So understandable that it hasn't increased since. Most people don't have the earnings after expenditure needs to fill it each year. 

Somebody with money in say a cash ISA should see it increase in real terms into next tax year because best buy savings interest is more than inflation currently, and on top of that they can subscribe another £20,000 next year. That feels like a real terms increase in how much is sheltered from tax.

These are the costings (i.e. savings) from the main budget document from 2024/2025 to 2029/2030 but I wouldn't read too much into them.

EthicsGradient

dunstonh said:

Fiscal drag is often used in figures. In some areas it makes sense to consider fiscal drag but in others there is less sense.

Personally, I am not so sure fiscal drag reporting works as well with contribution allowances as you would have to assume that everyone putting into an ISA is maximising the allowance each and every year.  

And even with fiscal drag, most people can put around £50k into a GIA and suffer no taxation.   So, if more people use a GIA, it doesn't necessarily result in more tax from all of them.

I think they'll be using figures based on how many people typically contribute the maximum in a year. Consider that £605 million is about £10 per adult. If this is for cash ISAs, that's the tax on £50 or £25 savings outside an ISA, by 2030 - assuming everyone maximises an allowance would be far more than that with typical inflation numbers. So this must be about a far smaller group of people - eg the proportion who do typically contribute the maximum, whether to a cash or S&S ISA.

TheBanker

EthicsGradient said:

dunstonh said:

Fiscal drag is often used in figures. In some areas it makes sense to consider fiscal drag but in others there is less sense.

Personally, I am not so sure fiscal drag reporting works as well with contribution allowances as you would have to assume that everyone putting into an ISA is maximising the allowance each and every year.  

And even with fiscal drag, most people can put around £50k into a GIA and suffer no taxation.   So, if more people use a GIA, it doesn't necessarily result in more tax from all of them.

I think they'll be using figures based on how many people typically contribute the maximum in a year. Consider that £605 million is about £10 per adult. If this is for cash ISAs, that's the tax on £50 or £25 savings outside an ISA, by 2030 - assuming everyone maximises an allowance would be far more than that with typical inflation numbers. So this must be about a far smaller group of people - eg the proportion who do typically contribute the maximum, whether to a cash or S&S ISA.

You're probably right but there are a lot of assumptions - they must have made an assumption that the £20k would have risen in line with inflation (but would it have been RPI or CPI, and would they have rounded it up or down?). And an assumption that the people who would have used a larger ISA allowance save outside of an ISA instead and therefore pay tax on the interest/investment gains. But they might not, they could decide to add the money to a pension, they might invest it and make a loss, they might put it in Premium Bonds, or they might spend it on a little treat. Some could gift it to a spouse to use their allowance instead... so all in all this is just a made up number! 

phlebas192

It would be interesting to see the modelling behind the numbers. I suspect there are some pretty big assumptions in there!

The amounts raised for this measure are a lot larger in this budget than the 2023 Autumn statement - that had £130m for 2028-9 compared to £285m this time. Possibly this is due to a secondary effect of other measures. eg bringing SIPPs into IHT can be expected to lead to less cash being put into them in future.

solidpro

That all being said - the jump from nothing to £15m to £600m in a few years with no real reason given does tend to make a lot of the figures look like they were plucked out of nowhere. It seems that the 'fiscal drag' assumption in the YT video is generally agreed to be correct then...?