If Cash ISAs are ended by Government.

Aretnap

hallmark said:

https://www.gov.uk/government/publications/autumn-budget-2024-overview-of-tax-legislation-and-rates-ootlar/841ddc37-58e0-4d3f-9b53-123e8903d274#:~:text=As announced at Autumn Budget 2024, the annual subscription limit,£4,000 until April 2030

2.6 ISA, Junior ISA, Lifetime ISA and Child Trust Fund annual subscription limits

As announced at Autumn Budget 2024, the annual subscription limit for:

• ISAs will remain unchanged at £20,000 until April 2030
• Junior ISAs will remain unchanged at £9,000 until April 2030
• Lifetime ISAs will remain unchanged at £4,000 until April 2030
• Child Trust Funds will remain unchanged at £9,000 until April 2030

These measures will apply to the whole of the UK.

Playing devil's advocate slightly, but that document also says that the "temporary" 5p cut in fuel duty originally introduced in 2022 will now expire in 2026. I don't think any serious person believes that it will actually be allowed to expire then, or probably ever.

I'm pretty sure that the government's fiscal plans also assume that the main rate of fuel duty will start to rise again from 2026, which is also very obviously not going to happen.

All fiscal plans remain in place until they don't.

Not that that means the ISA allowance is going be cut, still less abolished, any time soon if course.

Aretnap

Hinchandrossi 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?

The question is basically "if this thing that isn't going to happen happens, how will it happen?"

But if you want to look at history, back in the "good old days" (ie 2014), you could put up to £11,880 in an ISA, of which a maximum of £5,940 could be paid into a cash ISA. The other £5,940 was a use it or lose it opportunity to pay into a S&S ISA - but it was perfectly permissible not to do so and just use the cash ISA allowance.

As I think has been mentioned there would be practical as well as political problems with going back to that system. In the olden days while you could earn interest on cash balances within a S&S ISA, that interest was taxable as if it were a normal savings account, so there were no tax breaks from leaving your cash in Trading 212. Additionally, some very low risk investments like money market funds and possibly short dated gilts we're not eligible to be held within a S&S ISA, to stop then being used as a tax-free pseudo-cash savings account. Both of those rules have now been scrapped, and reintroducing them for existing S&S ISAs would doubtless be complicated.

ZeroSum

Aretnap said:

Hinchandrossi 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?

The question is basically "if this thing that isn't going to happen happens, how will it happen?"

But if you want to look at history, back in the "good old days" (ie 2014), you could put up to £11,880 in an ISA, of which a maximum of £5,940 could be paid into a cash ISA. The other £5,940 was a use it or lose it opportunity to pay into a S&S ISA - but it was perfectly permissible not to do so and just use the cash ISA allowance.

As I think has been mentioned there would be practical as well as political problems with going back to that system. In the olden days while you could earn interest on cash balances within a S&S ISA, that interest was taxable as if it were a normal savings account, so there were no tax breaks from leaving your cash in Trading 212. Additionally, some very low risk investments like money market funds and possibly short dated gilts we're not eligible to be held within a S&S ISA, to stop then being used as a tax-free pseudo-cash savings account. Both of those rules have now been scrapped, and reintroducing them for existing S&S ISAs would doubtless be complicated.

And the other complication of what do you then do with IFISAs which previously didn't exist.

Ocelot

I use the 20k ISA limit every year, as there is always a taxable fixed rate account expiring which can go into an ISA instead. I would not be able to save 20k a year for a new ISA, like most people, but this is no reason to lower the limit.

TheBanker

Ocelot said:

I use the 20k ISA limit every year, as there is always a taxable fixed rate account expiring which can go into an ISA instead. I would not be able to save 20k a year for a new ISA, like most people, but this is no reason to lower the limit.

Do you mean you've got existing ISA funds over £20k that you move to a new fixed rate ISA each year? 

Whilst this whole thread is based on speculation, I dount any changes will impact money that's already in an ISA. If they did reduce the subscription limit I think that would only apply to future subscriptions. I think any money already in an ISA would be able to stay there. 

masonic

TheBanker said:

Ocelot said:

I use the 20k ISA limit every year, as there is always a taxable fixed rate account expiring which can go into an ISA instead. I would not be able to save 20k a year for a new ISA, like most people, but this is no reason to lower the limit.

Do you mean you've got existing ISA funds over £20k that you move to a new fixed rate ISA each year? 

Whilst this whole thread is based on speculation, I dount any changes will impact money that's already in an ISA. If they did reduce the subscription limit I think that would only apply to future subscriptions. I think any money already in an ISA would be able to stay there. 

Which is why the whole idea is a non-starter. By the time any real benefits would be felt, any government that did this would be long out of power, leaving their successors to enjoy the benefits after they took all of the heat for doing it. If they wanted the potential revenue when it is needed (i.e. now), they would need to completely reform the product, for example by changing the wrapper to afford an additional limited tax free allowance rather than a blanket exemption, say the first £2k of cash ISA interest was tax free, or £1k for higher rate taxpayers. This would be horribly complex to actually implement though.

TheBanker

masonic said:

TheBanker said:

Ocelot said:

I use the 20k ISA limit every year, as there is always a taxable fixed rate account expiring which can go into an ISA instead. I would not be able to save 20k a year for a new ISA, like most people, but this is no reason to lower the limit.

Do you mean you've got existing ISA funds over £20k that you move to a new fixed rate ISA each year? 

Whilst this whole thread is based on speculation, I dount any changes will impact money that's already in an ISA. If they did reduce the subscription limit I think that would only apply to future subscriptions. I think any money already in an ISA would be able to stay there. 

Which is why the whole idea is a non-starter. By the time any real benefits would be felt, any government that did this would be long out of power, leaving their successors to enjoy the benefits after they took all of the heat for doing it. If they wanted the potential revenue when it is needed (i.e. now), they would need to completely reform the product, for example by changing the wrapper to afford an additional limited tax free allowance rather than a blanket exemption, say the first £2k of cash ISA interest was tax free, or £1k for higher rate taxpayers. This would be horribly complex to actually implement though.

I agree - and remember the speculation isn't based around the potential to raise more tax, it's based on wanting people to invest in order to stimulate growth. I imagine a system to limit subscriptions to Cash ISAs to, say, £10k per year would be relatively easy but I don't think it would achieve the objective of more investment in UK companies because...
1. Some (most) people who do invest will use global trackers or other stratagies which involve investing overseas
2. Some people won't want to invest so they'll use other savings accounts and accept the tax hit (which will have a small benefit to HMT)
3. Some will find a way around it, e.g. using their partner's ISA allowance
4. Some will use the money for other things e.g. overpaying a mortgage

So to achieve the stated aim, you're back to the 'British ISA' that the last government proposed, which never made it beyond a consultation. I think that product was too complex for ISA managers to be able to offer and still make a profit, given the extra monitoring and reporting that would be needed vs the potential income from platform fees on a £5k investment. 

It's also worth remembering how many problems the last short notice ISA rule changes to allow people to subscribe to more than one ISA caused for both the industry and HMRC. So even if they want to make any changes, I can't see them taking effect until at least the 2026/7 tax year. 

If this was about raising tax revenue, then the simple answer would be to scrap ISAs and give everyone higher Personal Savings allowances, Dividend allowances and Capital Gains allowances. Would be very unpopular though so won't happen. 

masonic

If they really want to do something that supports the UK economy / UK plc, then their best bet is probably some sort of equity investment scheme launched via NS&I.

caveman38

Surely nothing can change for 25/26. March 26 is only a statement (isn't it) and a full budget with policy changes is not due till autumn. Are there exceptions?

Ocelot

TheBanker said:

Ocelot said:

I use the 20k ISA limit every year, as there is always a taxable fixed rate account expiring which can go into an ISA instead. I would not be able to save 20k a year for a new ISA, like most people, but this is no reason to lower the limit.

Do you mean you've got existing ISA funds over £20k that you move to a new fixed rate ISA each year? 

Whilst this whole thread is based on speculation, I dount any changes will impact money that's already in an ISA. If they did reduce the subscription limit I think that would only apply to future subscriptions. I think any money already in an ISA would be able to stay there. 

No, I mean I have existing fixed rate non-ISAs that I typically move to ISAs when they expire (to avoid tax), as saving 20k a year of new money isn't always possible.