Reeves' ISA review

clairec666

SFCooper said:

clairec666 said:

Shylock_249 said:

clairec666 said:

ivormonee said:

We don't save in a cash ISA - we save in a savings account from which the income is not subject to tax, and such a tax-free savings account is called a cash ISA.

Reducing the limit that can be saved in such an account means that the interest from some of that money that somebody wishes to save will be taxable.

If somebody wishes to invest, then they already have that option. Therefore, reducing the cash ISA allowance will do virtually nothing to increase people investing rather than saving. It will just reduce the amount of tax-free income they can achieve.

So, Reeve's aim of reducing the cash ISA allowance is not to encorage investing; it is to increase tax receipts for the government. 

That's what I suspected the intention was all along - I would prefer some honesty from Reeves et al, rather than trying to sell it as something that benefits us. I would not resent her for saying "look, we need to raise some more money from taxes, and one way of doing this is to slash the ISA limit", and I doubt many people would stop voting Labour just because of this one little thing.

Interesting points.

Your 1st point: Honest from Reeves... Start by asking her who bought her outfits.

Your 2nd point: and I doubt........  Well there will be people out there who will NOT only be affected by "this one little thing", people like myself and my wife who will indeed get the winter fuel allowance only to have it clawed back later by HMRC. What a system ,what an idea?

If one could save 10k in an ISA at current rates of about 4.5% the interest for one year would be £450. Without the ISA wrapper HMRC will, for lots of people, deduct £90 in tax.  Agreed it might be one little thing to me, my wife and possibly you, but £90 is NOT to be sniffed at by lots of people and I doubt it will be a vote winner.  Doing nothing is the best option IMO. 

Fair point, but what I meant was that people are likely to form opinions about Labour based on several policies, not just one. And in some cases then losing some of their ISA allowance may be the straw that breaks the camel's back and encourage them to vote elsewhere, but I can't imagine there are many people who would have happily voted Labour but changed their mind solely on the ISA allowance being cut.

And yes, £90 is not to be sniffed at, and I would be a bit miffed at paying an extra £90 in tax, but if someone is able to put away £10,000 a year in savings, they are more likely to be able to cope with the loss of £90 than someone with no savings at all.

So I should be punished if I have the ability to save that amount?

The same could be said for a lot of tax policies. Higher rate tax payer? You're being punished for working hard and climbing the career ladder.

clairec666

Shylock_249 said:

clairec666 said:

Shylock_249 said:

clairec666 said:

ivormonee said:

We don't save in a cash ISA - we save in a savings account from which the income is not subject to tax, and such a tax-free savings account is called a cash ISA.

Reducing the limit that can be saved in such an account means that the interest from some of that money that somebody wishes to save will be taxable.

If somebody wishes to invest, then they already have that option. Therefore, reducing the cash ISA allowance will do virtually nothing to increase people investing rather than saving. It will just reduce the amount of tax-free income they can achieve.

So, Reeve's aim of reducing the cash ISA allowance is not to encorage investing; it is to increase tax receipts for the government. 

That's what I suspected the intention was all along - I would prefer some honesty from Reeves et al, rather than trying to sell it as something that benefits us. I would not resent her for saying "look, we need to raise some more money from taxes, and one way of doing this is to slash the ISA limit", and I doubt many people would stop voting Labour just because of this one little thing.

Interesting points.

Your 1st point: Honest from Reeves... Start by asking her who bought her outfits.

Your 2nd point: and I doubt........  Well there will be people out there who will NOT only be affected by "this one little thing", people like myself and my wife who will indeed get the winter fuel allowance only to have it clawed back later by HMRC. What a system ,what an idea?

If one could save 10k in an ISA at current rates of about 4.5% the interest for one year would be £450. Without the ISA wrapper HMRC will, for lots of people, deduct £90 in tax.  Agreed it might be one little thing to me, my wife and possibly you, but £90 is NOT to be sniffed at by lots of people and I doubt it will be a vote winner.  Doing nothing is the best option IMO. 

Fair point, but what I meant was that people are likely to form opinions about Labour based on several policies, not just one. And in some cases then losing some of their ISA allowance may be the straw that breaks the camel's back and encourage them to vote elsewhere, but I can't imagine there are many people who would have happily voted Labour but changed their mind solely on the ISA allowance being cut.

And yes, £90 is not to be sniffed at, and I would be a bit miffed at paying an extra £90 in tax, but if someone is able to put away £10,000 a year in savings, they are more likely to be able to cope with the loss of £90 than someone with no savings at all.

Yes I agree with you but:

Well I think the Kulaks, the enemies of the Labour Party, being small farmers with land and farm chattels worth a whopping 1£m (about the same as a terrace house in Bermondsey), and the stinking rich small enterprises, like the double glazing firm near where I live who has had to put one of his two vans into storage because he couldn't afford the extra employer National Insurance will be chomping at the bit to vote for Ms Reeves' policy.  Just like the recent voters in Caerphilly did. 😊

That's the point I was trying to make - the small businesses who are struggling because of the NI increases have already got good reason to turn their back on Labour. They will likely have made their minds up already, changes to the ISA limit are only going to be a minor part of their decision making.

poseidon1

Until interest rates began to rise in the middle of 2022, rates of returns on cash ISAs were around 1% ( or less!) for many years after the 2008 financial cash, so utterly pointless as a savings medium for anyone during that period. I accept that many memories  here in this thread maybe short in that respect.

During that lost period of savings interest  I converted my 79 year old mother's derisory cash isas (paying 0.5%) to a stocks and shares isa, and re- invested in a selection of funds and shares I myself held in my ISA to generate an average annual income of 6.5% on her behalf. An immense and meaningful uplift from the nonsense returns she was receiving on cash. That isa portfolio consistently delivers income of 6.5% + to this very day.

As interest rates now steadily decline again,  savers may eventually begin to experience those past periods of poor interest returns. Great for mortgage holders, devastating for savers incapable of looking beyond conventional bank saving accounts.

As long as the overall ISA limit remains at £20k, the possible limitation to £10k  for cash would only take us back to 2010 when the overall limit was £10,200.  Even at £10k ( for cash) this is considerably higher than any comparable tax free cash saving product  available in the rest of Europe.  

Albermarle

SFCooper said:

clairec666 said:

Shylock_249 said:

clairec666 said:

ivormonee said:

We don't save in a cash ISA - we save in a savings account from which the income is not subject to tax, and such a tax-free savings account is called a cash ISA.

Reducing the limit that can be saved in such an account means that the interest from some of that money that somebody wishes to save will be taxable.

If somebody wishes to invest, then they already have that option. Therefore, reducing the cash ISA allowance will do virtually nothing to increase people investing rather than saving. It will just reduce the amount of tax-free income they can achieve.

So, Reeve's aim of reducing the cash ISA allowance is not to encorage investing; it is to increase tax receipts for the government. 

That's what I suspected the intention was all along - I would prefer some honesty from Reeves et al, rather than trying to sell it as something that benefits us. I would not resent her for saying "look, we need to raise some more money from taxes, and one way of doing this is to slash the ISA limit", and I doubt many people would stop voting Labour just because of this one little thing.

Interesting points.

Your 1st point: Honest from Reeves... Start by asking her who bought her outfits.

Your 2nd point: and I doubt........  Well there will be people out there who will NOT only be affected by "this one little thing", people like myself and my wife who will indeed get the winter fuel allowance only to have it clawed back later by HMRC. What a system ,what an idea?

If one could save 10k in an ISA at current rates of about 4.5% the interest for one year would be £450. Without the ISA wrapper HMRC will, for lots of people, deduct £90 in tax.  Agreed it might be one little thing to me, my wife and possibly you, but £90 is NOT to be sniffed at by lots of people and I doubt it will be a vote winner.  Doing nothing is the best option IMO. 

Fair point, but what I meant was that people are likely to form opinions about Labour based on several policies, not just one. And in some cases then losing some of their ISA allowance may be the straw that breaks the camel's back and encourage them to vote elsewhere, but I can't imagine there are many people who would have happily voted Labour but changed their mind solely on the ISA allowance being cut.

And yes, £90 is not to be sniffed at, and I would be a bit miffed at paying an extra £90 in tax, but if someone is able to put away £10,000 a year in savings, they are more likely to be able to cope with the loss of £90 than someone with no savings at all.

So I should be punished if I have the ability to save that amount?

You could turn that on its head and say the £20K cash ISA limit was excessively generous, so you ( or me ) have saved lots of tax in past years.
In most developed countries such tax breaks on savings interest hardly exist, or are on a much smaller scale.
We have been spoiled and now we do not want to let go !

ivormonee

poseidon1 said:

savers incapable of looking beyond conventional bank saving accounts.

Which I believe reinforces the point I made earlier in that the question of whether to save or invest, and in what proportion, is influenced by knowledge and awareness - the integral missing ingredient in Reeve's contemplation of reducing the cash ISA allowance. Additionally, your point generalises those who choose to save rather than invest with the same brush stroke of incapability. However, I would argue that for many it is not a question of competence or capability, but of choice - some have no need or desire to take on the risk of investing, and their choice to save is informed and well-considered.

poseidon1 said:

the possible limitation to £10k  for cash would only take us back to 2010 when the overall limit was £10,200.  

That would not be the case if we factor in the cumulative effect of inflation during this timeframe - £10,200 in 2010 is equivalent to £16,370 today, so a reduction to the 2010 rate would be an effective real reduction of £6,170.

poseidon1 said:

Even at £10k ( for cash) this is considerably higher than any comparable tax free cash saving product  available in the rest of Europe.  

It may well be, but Europe's finances are very different in many ways. So we would be comparing fruit of different varieties in making such comparisons. For example, the base rate accross the EU has been consistently significantly lower than that of the UK for a considerable time, wages in some European countries are significantly lower in many areas, etc. If someone earns a lot less, and contends with more favourable base rates, then to be on a par with the UK a cash ISA equivalent product would need to be less generous in some proportionally comparative way.

A final point - we've been used to certain thresholds and allowances for many years and we've witnessed these being whittled down in recent years, both in nominal terms and in real terms (eg. CGT from £12.3k to £3k, dividend allowance from £5k to £0.5k, SPA frozen for several years, etc.). The cash ISA allowance is potentially another nail in the fiscal drag, freeze or reduce coffin, if Reeves ploughs ahead with her purported reduction. All arguably dishonest and deceitful in the name of fake broad shoulder fairness arising from irresponsible pledges.  

poseidon1

ivormonee said:

poseidon1 said:

savers incapable of looking beyond conventional bank saving accounts.

Which I believe reinforces the point I made earlier in that the question of whether to save or invest, and in what proportion, is influenced by knowledge and awareness - the integral missing ingredient in Reeve's contemplation of reducing the cash ISA allowance. Additionally, your point generalises those who choose to save rather than invest with the same brush stroke of incapability. However, I would argue that for many it is not a question of competence or capability, but of choice - some have no need or desire to take on the risk of investing, and their choice to save is informed and well-considered.

poseidon1 said:

the possible limitation to £10k  for cash would only take us back to 2010 when the overall limit was £10,200.  

That would not be the case if we factor in the cumulative effect of inflation during this timeframe - £10,200 in 2010 is equivalent to £16,370 today, so a reduction to the 2010 rate would be an effective real reduction of £6,170.

poseidon1 said:

Even at £10k ( for cash) this is considerably higher than any comparable tax free cash saving product  available in the rest of Europe.  

It may well be, but Europe's finances are very different in many ways. So we would be comparing fruit of different varieties in making such comparisons. For example, the base rate accross the EU has been consistently significantly lower than that of the UK for a considerable time, wages in some European countries are significantly lower in many areas, etc. If someone earns a lot less, and contends with more favourable base rates, then to be on a par with the UK a cash ISA equivalent product would need to be less generous in some proportionally comparative way.

A final point - we've been used to certain thresholds and allowances for many years and we've witnessed these being whittled down in recent years, both in nominal terms and in real terms (eg. CGT from £12.3k to £3k, dividend allowance from £5k to £0.5k, SPA frozen for several years, etc.). The cash ISA allowance is potentially another nail in the fiscal drag, freeze or reduce coffin, if Reeves ploughs ahead with her purported reduction. All arguably dishonest and deceitful in the name of fake broad shoulder fairness arising from irresponsible pledges.  

There is no immutable law that  states the threshold for  tax advantaged products should  keep pace with inflation or any other yard stick considered appropriate.

I hear no one bemoaning the fact that the £50k limit for premium bonds has been static for 10 years. Successive governments have the freedom to determine the limits they wish to impose on schemes which avoid taxes that would otherwise accrue to the Exchequer, having regard to state of the nation's finances at any given time. When times are good one can hope for the loosening of the reins, those are not the times we currently live in.

The radical reduction in the annual CGT exemption from £12,600 to a paltry £3000,  in a matter of just 3 tax years was  highly regrettable, but that's the reality of a government having to scavenge for every a penny it can find from whomever they believe can afford it. 

With tax raising measures you first try and hit those who you perceive can afford it starting with billionaires then millionaires down to the mass affluent. At some point however, you hit diminishing returns from those who have choices and then you are left to see what you  can scavenge from the broader general public. This is the road the Labour Party are now travelling, and for the general public either incapable or by choice unable to adjust, the outcome is the same , you become poorer.

ivormonee

poseidon1 said:

There is no immutable law that  states the threshold for  tax advantaged products should  keep pace with inflation or any other yard stick considered appropriate. 

Absolutely. The government can completely abolish ISAs, all pension reliefs, etc., and indeed freeze or reduce other allowances if they want to.

poseidon1 said:
With tax raising measures you first try and hit those who you perceive can afford it starting with billionaires then millionaires down to the mass affluent.

It would seem a fair way of doing things, but I'm not convinced that this is necessarily the approach that successive governments have taken.

wmb194

We can squabble about the rights are wrongs until the cows come home but what we really need to know is the fine detail. If gilts and MMFs continue to be allowed in S&S ISAs this is a non-issue.

pecunianonolet

When I tell my friends and relatives in another EU country that I can put 20k away and have on top a £500 PSA (higher rate tax payer), have a separate dividend allowance of £500 and £1500 CGT allowance they think I live in wonderland. 

When I tell them how generous private pension tax relief is and in comparison how low my total deductions (NI + income tax) are they scratch their head about high taxes and wealth building. 

Total deductions in UK for me ca 28% vs. 37% with the same salary in my relatives home country in the EU. 

So to put this in context, UK taxes aren't that high within OECD countries (2021 data) but estimated to rise to slighly above average. 

Source: https://ifs.org.uk/taxlab/taxlab-key-questions/how-do-uk-tax-revenues-compare-internationally

It is astaounding to read everywhere that taxation is too high (in historical context true), at the same time my relatives think I am joking when I show them my state pension forecast. Having driven 1000 miles across the UK and 4 EU counrtries just last week I can with certainty say UK roads are the worst, reflecive of crumbling infrastructure literally everywhere. 

It's in general a problem that it's a service and and finance based economy. The guy that comes round at home to clean the organic bins every 4 weeks is having a job but there isn't any real value add to the economy. Too many low key service jobs not adding much to the treasury coffers combined with the fact that productivity has been basically flat for ages. A problem most western countries face.

For example, if you are a couple, no kids, earning 55k in the UK each in a not too expensive rental flat, one car and sensible with spending, holidays, etc. you have a 6k plus household income, potentially already in your early 30s. Perfectly possible to put 20k or nearly 20k into an ISA I would think and I would class this not as rich or anything. Just a middle class income that pays off the investments made during maybe bachelor and master studies putting hard work into achieving something that enables you to find a decently paid job. 

--> I heavily simplified above and this is not about London economy, kids, mortgages, etc. all add much more complexity. 

I am lucky to be able to fill my ISA easily every year for the last few due to landing a great and rather well paid job but I also prioritise and not go to the pub often, order any take aways, have every subscription possible and blowing hundreds a month and neither need 3 fancy holidays a year. 

For many, 20k annual allowance looks like it is for the rich and elite but as said before, in an international context this is extremly generous. 

The key problem is not the ISA allowance, the problem is that too many aren't in well paid jobs that enable them to put more into an ISA. Combine that with too many not knowing how to handle money well or shop around and it soon becomes a debate of envy.

Even if the allowance is cut to 10k, it would still be generous but of course nobody wants to go backwards that has been able to benefit from the full allowance. For many it won't make a difference anyhow. Will the treasury generate more tax, certainly in the short run until another party will make promises to reverse it to gain power. 

I don't want to be political but cutting yourself off the largest free trade zone in the world wasn't the wisest move. As history told us many times, the electorate wants simple answers for complex problems and whoever is clever enough to deliver that in the right way will walk to power until somebody else comes along giving simple answers again to new or never solved other problems and the circle starts again. 

Over and out 

intalex

Necessary not popular decisions coming up...