If Cash ISAs are ended by Government.

P933alilli

Another consideration regarding the need for isas is if youre only a few years from state pension age. Its better to plan ahead and get as much as possible into isas beforehand, whether cash isa or stocks & shares isas, otherwise you'd incur a heftier tax bill as the state pension is taxable. Sorry if this has already been covered!

SVaz

Yep. That’s exactly what my Wife is doing,  she is using her spare personal allowance to get most of her Sipp into both cash and S&S isas before she hits 67 in 2032. 

masonic

onomatopoeia99 said:

Notepad_Phil said:

SVaz said:

If, in the vanishingly rare chance that they do this,  there is a simple workaround - transfer into a Stocks and shares ISA and put the cash into a Short term money market fund.   They track the Banks own overnight rates. 

I don't remember this myself, but there was mention on another post that in the early days of S&S ISAs that such funds were not allowed to be held within an ISA, they had to be at least some percentage of equities. So I'd expect something like that happening again in the very remote chance of cash ISAs ending. 

They'd also have to stop interest being paid on uninvested cash in an S&S ISA.  

While I've benefited from the £20k limit this year due to an unexpected capital gain (first time and last time I am certain), I've also long felt it's way too high as what person on an average wage raising a family can save £20k/year? 

Interest was previously payable on S&S ISA cash when low risk investments were ineligible, but it was taxable.

masonic

friolento said:

What is the reason for some forumites supporting the partial or full abolition of the £20k annual limit (which AFAIK has already been frozen until 2030)? 

If the thinking is that most people can only dream of being able to save that much a year, then surely it would not yield any noteworthy amount of tax for the Treasury? Particularly in a falling interest rate environment. So what would be the point of depriving people, especially older ones who prefer cash savings, or younger ones saving e.g. for a deposit, from getting a bit of extra income, and to discourage people from having a cash reserve?

So that those in the city who are pushing it can sell you investment funds with management charges of course

Hoenir

incus432 said:

Electoral suicide . Not going to happen

From an objective viewpoint there's justification in reviewing them thoroughly.  The annual allowance is far above what an average person can save in a year. Merely becomes another tax shelter for the wealthy in retirement. 

InvesterJones

friolento said:

What is the reason for some forumites supporting the partial or full abolition of the £20k annual limit (which AFAIK has already been frozen until 2030)? 

If the thinking is that most people can only dream of being able to save that much a year, then surely it would not yield any noteworthy amount of tax for the Treasury? Particularly in a falling interest rate environment. So what would be the point of depriving people, especially older ones who prefer cash savings, or younger ones saving e.g. for a deposit, from getting a bit of extra income, and to discourage people from having a cash reserve?

I don't particularly support one way or the other. But I can see the some reasonings. 

1. Progressive tax regimes put more burden on the well-off. A tax break which is only used by the well-off doesn't fit that narrative very well, however since it's not possible to apply a cut-off to total amount sheltered without being in danger of retrospective taxation, which is painful, a more acceptable approach is to limit at point of contribution. If it went down to £15k yearly for example then it probably wouldn't affect younger people saving for a deposit or older people who have already made their contributions.

2. If you have a system which reserves some portion of the allowance, say £5k out of £20k total, for stocks & shares then you don't affect the ability of people to use a significant amount of tax shelter for cash, while encouraging some liquidity in stocks and shares and potentially raising overall return making people better off. I'm sure some people would even like to specify stocks and shares that are traded on london stock exchanges which would maybe hit returns but would force liquidity in those markets.

Aretnap

friolento said:

If the thinking is that most people can only dream of being able to save that much a year, then surely it would not yield any noteworthy amount of tax for the Treasury? 

Not really. A small number of people who put £20,000 into an ISA each and every year will clearly account for a much larger chunk of the total tax saving than a large number of people who put a few hundred quid in when they can, then take it out again when they need it.

There's about £400 billion held in Cash ISAs. If that's earning an average interest rate of, say, 4% that equates to something like £3-6 billion of tax savings per year, depending on whether the savings are mostly going to basic or higher rate taxpayers. I didn't know the exact figures on how it's distributed, but it would be a major surprise if it wasn't skewed very significantly towards the wealthy (anyone who has £20,000 to save per year, or anything like that much, is wealthy, by definition).

I don't by the way think that the allowance will be actually be cut. I do however think that it would not be outrageous to cut it, or to split it between cash and S&S (as was the case until a decade or so ago) - and I say that as someone who used my full £20K allowance this year and expects to use it again next year.

[Deleted User]

Hypothetical question.

If say they changed the 20k ISA allowance to one where 5k has to be S&S, do you think that will be a definitive 3 : 1 ratio?

Or for instance do you think in theory you could put 15k into a cash ISA and simply not bother with S&S?

boingy

I don't think there are many "normal people" putting 20K into an ISA every year. There are, however, plenty of "normal people" who occasionally come into some money. Downsizing your house, an insurance pay-out, an inheritance, a lump sum from a pension, a lottery win(!), etc. Those are all occasions where an ordinary person might use the full ISA allowance across a year or two. If you were to reduce or abolish Cash ISAs I don't for a minute think all that "future" money would be put into S&S ISAs. They are very different products with very different risk profiles.

ZeroSum

[Deleted User] said:

Hypothetical question.

If say they changed the 20k ISA allowance to one where 5k has to be S&S, do you think that will be a definitive 3 : 1 ratio?

Or for instance do you think in theory you could put 15k into a cash ISA and simply not bother with S&S?

It's something like only 6% of adults have a s&s isa. If they were to go back to the old system on mini & maxi isas, it suddenly won't push people into putting money into the markets as they'd be doing it currently. They just put no more than the limit into cash. It's why if they abolished the cash part of isas it'd punish mainly the working classes as stock market based investments are in the main done by the middle classes