Martin Lewis: Is the £20,000 cash ISA limit about to be killed off?

Neversurrender

slinger2 said:

Neversurrender said:

@Hoenir

Seems a pretty strange idea to me. The old people who've had a very generous allowance for donkeys years are allowed to have it going forward. But the young people who've never had the chance to save in an ISA are to penalised.

Would make much more sense to say that anyone over the state retirement age

That's a pretty senseless comment.

Investing is for the longer term, Many older people rely on being able to keep cash invested with a guaranteed increase, which is important to at least make up for inflation, they also don't have the time ahead like younger people, and everyone knows,  that to invest in stocks and shares requires 5 years at the very least.

With that kind of investing at an older age, there would be many dying rich

Remember, there is little profit from saving in a cash ISA, as the interest mainly covers inflation, with a limit £4000 that would put more of the elderly into tax, eating away at any interest

I was simply pointing out the senselessness of the original idea: that pensioners should get preferential treatment regarding cash ISAs.

Exactly, which is the reason I said it was a senseless comment you made, for the very reasons I stated above.

Hoenir

masonic said:

After 8 pages, the good old British ISA is starting to sound more appealing.

For those that remember PEP's. The original concept that lasted to 1999.  Gone full cycle.  

boingy

masonic said:

After 8 pages, the good old British ISA is starting to sound more appealing.

That's a great idea. They could get Churchill to promote it, standing in front of a large, friendly poster that reads "Your ISA needs YOU!" Unless, of course, Churchill is dead, in which case we might have to have Michael Caine, Stephen Fry or Brian Blessed. ;p

intalex

MeteredOut said:

intalex said:

friolento said:

They could easily make a new rule that interest on balances above £xxx,xxx is no longer tax free in future. Would be an admin nightmare and extra cost for HMRC but could be “sold” as additional income of several billions a year for the Treasury. This could even be popular because it taxes “the rich”. 😱

Easier to cap the tax-free interest than to cap the principal, as it would simply involve banks starting to report the ISA interest, issuing tax certificates, and asking savers to track and report their ISA interest as they currently do for non-ISA interest, and simply impose the cap (as another 0% rate band / allowance) in self-assessment / standalone tax liability calculations...

Asking the banks to make changes is never simple. Even if this change was announced in October, many legacy banks would struggle to have their systems changed by the start of the 25/26 tax year.

Agreed that reducing annual cash ISA allowance is the most likely expected scenario, but since the possibility of constraining the benefit on built-up cash ISA balances was brought up, I simply pointed out that capping the interest would be easier to enforce, implement and police than capping the principal.

Banks already report non-ISA interest so it's already systemised and will require minimal logic programming to start doing the same for ISAs too (with a simple but clear marker to differentiate ISA vs non-ISA on what they report to HMRC as well as provide to savers on tax certificates). And for HMRC to add a 0% rate band / allowance (basically the ISA tax-free interest cap) would be minimal logic programming too as it'll be much like the £5k starter rate or the PSA. With this they could even adapt the cap (allowance) by age to accommodate those de-risking into cash as they approach retirement.

On the other hand, capping the principal would be impractical (virtually impossible) to implement, not just the initial ordeal of bringing everyone's total cash ISA balances down to under that cap, but also to track whether anyone exceeds the cap (e.g. simply by interest paid into the ISA).

Once again, I'm expecting no more than a cap on annual cash ISA allowance this year, but if down the line finances get tighter and they look to constrain the benefit on built-up cash ISA balances, then I would expect the cap to be on tax-free interest rather than on the principal.

MeteredOut

intalex said:

MeteredOut said:

intalex said:

friolento said:

They could easily make a new rule that interest on balances above £xxx,xxx is no longer tax free in future. Would be an admin nightmare and extra cost for HMRC but could be “sold” as additional income of several billions a year for the Treasury. This could even be popular because it taxes “the rich”. 😱

Easier to cap the tax-free interest than to cap the principal, as it would simply involve banks starting to report the ISA interest, issuing tax certificates, and asking savers to track and report their ISA interest as they currently do for non-ISA interest, and simply impose the cap (as another 0% rate band / allowance) in self-assessment / standalone tax liability calculations...

Asking the banks to make changes is never simple. Even if this change was announced in October, many legacy banks would struggle to have their systems changed by the start of the 25/26 tax year.

Agreed that reducing annual cash ISA allowance is the most likely expected scenario, but since the possibility of constraining the benefit on built-up cash ISA balances was brought up, I simply pointed out that capping the interest would be easier to enforce, implement and police than capping the principal.

Banks already report non-ISA interest so it's already systemised and will require minimal logic programming to start doing the same for ISAs too (with a simple but clear marker to differentiate ISA vs non-ISA on what they report to HMRC as well as provide to savers on tax certificates). And for HMRC to add a 0% rate band / allowance (basically the ISA tax-free interest cap) would be minimal logic programming too as it'll be much like the £5k starter rate or the PSA. With this they could even adapt the cap (allowance) by age to accommodate those de-risking into cash as they approach retirement.

On the other hand, capping the principal would be impractical (virtually impossible) to implement, not just the initial ordeal of bringing everyone's total cash ISA balances down to under that cap, but also to track whether anyone exceeds the cap (e.g. simply by interest paid into the ISA).

Once again, I'm expecting no more than a cap on annual cash ISA allowance this year, but if down the line finances get tighter and they look to constrain the benefit on built-up cash ISA balances, then I would expect the cap to be on tax-free interest rather than on the principal.

Again, you are vastly oversimplifying the complexity of such changes for some banks. Don't assume that banks non-ISA and ISA products are run on the same software platforms and therefore just need the flip of a switch to start reporting ISA interest to HMRC.

wmb194

MeteredOut said:

intalex said:

MeteredOut said:

intalex said:

friolento said:

They could easily make a new rule that interest on balances above £xxx,xxx is no longer tax free in future. Would be an admin nightmare and extra cost for HMRC but could be “sold” as additional income of several billions a year for the Treasury. This could even be popular because it taxes “the rich”. 😱

Easier to cap the tax-free interest than to cap the principal, as it would simply involve banks starting to report the ISA interest, issuing tax certificates, and asking savers to track and report their ISA interest as they currently do for non-ISA interest, and simply impose the cap (as another 0% rate band / allowance) in self-assessment / standalone tax liability calculations...

Asking the banks to make changes is never simple. Even if this change was announced in October, many legacy banks would struggle to have their systems changed by the start of the 25/26 tax year.

Agreed that reducing annual cash ISA allowance is the most likely expected scenario, but since the possibility of constraining the benefit on built-up cash ISA balances was brought up, I simply pointed out that capping the interest would be easier to enforce, implement and police than capping the principal.

Banks already report non-ISA interest so it's already systemised and will require minimal logic programming to start doing the same for ISAs too (with a simple but clear marker to differentiate ISA vs non-ISA on what they report to HMRC as well as provide to savers on tax certificates). And for HMRC to add a 0% rate band / allowance (basically the ISA tax-free interest cap) would be minimal logic programming too as it'll be much like the £5k starter rate or the PSA. With this they could even adapt the cap (allowance) by age to accommodate those de-risking into cash as they approach retirement.

On the other hand, capping the principal would be impractical (virtually impossible) to implement, not just the initial ordeal of bringing everyone's total cash ISA balances down to under that cap, but also to track whether anyone exceeds the cap (e.g. simply by interest paid into the ISA).

Once again, I'm expecting no more than a cap on annual cash ISA allowance this year, but if down the line finances get tighter and they look to constrain the benefit on built-up cash ISA balances, then I would expect the cap to be on tax-free interest rather than on the principal.

Again, you are vastly oversimplifying the complexity of such changes for some banks. Don't assume that banks non-ISA and ISA products are run on the same software platforms and therefore just need the flip of a switch to start reporting ISA interest to HMRC.

Yes, and it's also a tough ask for HMRC. It already struggles enough with taxable interest reporting and taxation without adding more layers of complexity.

"And for HMRC to add a 0% rate band / allowance (basically the ISA tax-free interest cap) would be minimal logic programming too as it'll be much like the £5k starter rate or the PSA. With this they (sic) could even adapt the cap (allowance) by age to accommodate those de-risking into cash as they approach retirement."

intalex

So are you both saying capping the cash ISA principal would be easier to implement than capping the cash ISA tax-free interest?

friolento

MeteredOut said:

intalex said:

MeteredOut said:

intalex said:

friolento said:

They could easily make a new rule that interest on balances above £xxx,xxx is no longer tax free in future. Would be an admin nightmare and extra cost for HMRC but could be “sold” as additional income of several billions a year for the Treasury. This could even be popular because it taxes “the rich”. 😱

Easier to cap the tax-free interest than to cap the principal, as it would simply involve banks starting to report the ISA interest, issuing tax certificates, and asking savers to track and report their ISA interest as they currently do for non-ISA interest, and simply impose the cap (as another 0% rate band / allowance) in self-assessment / standalone tax liability calculations...

Asking the banks to make changes is never simple. Even if this change was announced in October, many legacy banks would struggle to have their systems changed by the start of the 25/26 tax year.

Agreed that reducing annual cash ISA allowance is the most likely expected scenario, but since the possibility of constraining the benefit on built-up cash ISA balances was brought up, I simply pointed out that capping the interest would be easier to enforce, implement and police than capping the principal.

Banks already report non-ISA interest so it's already systemised and will require minimal logic programming to start doing the same for ISAs too (with a simple but clear marker to differentiate ISA vs non-ISA on what they report to HMRC as well as provide to savers on tax certificates). And for HMRC to add a 0% rate band / allowance (basically the ISA tax-free interest cap) would be minimal logic programming too as it'll be much like the £5k starter rate or the PSA. With this they could even adapt the cap (allowance) by age to accommodate those de-risking into cash as they approach retirement.

On the other hand, capping the principal would be impractical (virtually impossible) to implement, not just the initial ordeal of bringing everyone's total cash ISA balances down to under that cap, but also to track whether anyone exceeds the cap (e.g. simply by interest paid into the ISA).

Once again, I'm expecting no more than a cap on annual cash ISA allowance this year, but if down the line finances get tighter and they look to constrain the benefit on built-up cash ISA balances, then I would expect the cap to be on tax-free interest rather than on the principal.

Again, you are vastly oversimplifying the complexity of such changes for some banks. Don't assume that banks non-ISA and ISA products are run on the same software platforms and therefore just need the flip of a switch to start reporting ISA interest to HMRC.

All ISA providers are already reporting to the HMRC annually. Any change in the taxation policy would not require the ISA providers to do anything different from today - - apart from perhaps updating T&Cs and web pages which refer to the taxation policy. No system changes required from the ISA providers.

HMRC have existing procedures to collect tax due from non-ISA accounts. These can easily be extended to include cash ISAs. It would, however, be a minor nightmare for savers because the existing policy for non-ISAs is anything but transparent.

Exodi

Shylock_249 said:

Recharger said:

I hope Martin pursues this as much as possible with his normal vigour. On one hand governments want us to save for the future and have provided ISA's as a way of making some savings tax free. Now it appears that this government is going to make yet another big error and alienate even more people. Stocks and Shares ISA's are very useful for longer term gains, for those prepared to take a moderate element of risk and are to be recommended. For those who are risk averse and particularly those senior citizens (who don't have the luxury of the longer term savings) cash ISA's are a safe haven for some tax free gain. They should be looking at increasing, not decreasing the maximum allowed.
Given their mistakes on the low level of entitlement to the winter fuel allowance, possible changes to PIP and other disabled benefits, plus dragging pensioners into more and higher rate tax, lets hope they get a wake up call in the local elections and do not continue targeting those on lower and moderate incomes (which seems totally at odds with their ethics).
Any thoughts welcome!

One possible solution might be to allow the current 20k ISA rate to those at and above retirement age? 

In the last fy the wife and I converted our S&S ISAs into cash ISAs which we'd held for a number of years. At the age of 77 I'm certainly NOT going to start new S&S ISAs.  Fortunately we've always been able to take out cash ISAs of 20k each within the first few days of each financial year.  If the cash element is only 4k I certainly won't put 16k in S&S meaning that I'll be taxed on the interest for the 16k, so as I see it it's a win win for the government. 

Not at all biased I see.

You don't need to suggest the government shapes policy around you, if they limited Cash ISA's you could just 'invest' the money in a MMF within a S&S ISA, as I expect most will end up doing who are risk averse when they realise this possibility.

masonic

friolento said:

MeteredOut said:

intalex said:

MeteredOut said:

intalex said:

friolento said:

They could easily make a new rule that interest on balances above £xxx,xxx is no longer tax free in future. Would be an admin nightmare and extra cost for HMRC but could be “sold” as additional income of several billions a year for the Treasury. This could even be popular because it taxes “the rich”. 😱

Easier to cap the tax-free interest than to cap the principal, as it would simply involve banks starting to report the ISA interest, issuing tax certificates, and asking savers to track and report their ISA interest as they currently do for non-ISA interest, and simply impose the cap (as another 0% rate band / allowance) in self-assessment / standalone tax liability calculations...

Asking the banks to make changes is never simple. Even if this change was announced in October, many legacy banks would struggle to have their systems changed by the start of the 25/26 tax year.

Agreed that reducing annual cash ISA allowance is the most likely expected scenario, but since the possibility of constraining the benefit on built-up cash ISA balances was brought up, I simply pointed out that capping the interest would be easier to enforce, implement and police than capping the principal.

Banks already report non-ISA interest so it's already systemised and will require minimal logic programming to start doing the same for ISAs too (with a simple but clear marker to differentiate ISA vs non-ISA on what they report to HMRC as well as provide to savers on tax certificates). And for HMRC to add a 0% rate band / allowance (basically the ISA tax-free interest cap) would be minimal logic programming too as it'll be much like the £5k starter rate or the PSA. With this they could even adapt the cap (allowance) by age to accommodate those de-risking into cash as they approach retirement.

On the other hand, capping the principal would be impractical (virtually impossible) to implement, not just the initial ordeal of bringing everyone's total cash ISA balances down to under that cap, but also to track whether anyone exceeds the cap (e.g. simply by interest paid into the ISA).

Once again, I'm expecting no more than a cap on annual cash ISA allowance this year, but if down the line finances get tighter and they look to constrain the benefit on built-up cash ISA balances, then I would expect the cap to be on tax-free interest rather than on the principal.

Again, you are vastly oversimplifying the complexity of such changes for some banks. Don't assume that banks non-ISA and ISA products are run on the same software platforms and therefore just need the flip of a switch to start reporting ISA interest to HMRC.

All ISA providers are already reporting to the HMRC annually. Any change in the taxation policy would not require the ISA providers to do anything different from today - - apart from perhaps updating T&Cs and web pages which refer to the taxation policy. No system changes required from the ISA providers.

HMRC have existing procedures to collect tax due from non-ISA accounts. These can easily be extended to include cash ISAs. It would, however, be a minor nightmare for savers because the existing policy for non-ISAs is anything but transparent.

The annual ISA returns do not include provisions for the providers to report interest earned. Given that we're in the second tax year of flexible ISAs being restricted to prevent replacement subscriptions being paid into a different ISA (the change required is simply for ISA managers to no longer deduct flexible withdrawals from the total subscriptions for the year), yet this still hasn't been reflected in ISA returns, any change to add a field for interest would likely take years to implement across the industry.

Whereas changing the subscription limit, in software terms, is equivalent to changing the value of a constant, and this has been done before.