Martin Lewis: Cash ISA limit could be cut – this is 'p*ss people off economics'

Sg28

Surely this is about raising tax rather than encouraging investment. 

In 1999 the cash isa limit was £3000. Adjusted for (the boe's) inflation this gives around £5,750. So why give well off people such a big tax break? Anyone who can afford to put £20k a year into an isa can afford to pay a bit more tax. (For context I've been maxing my isa for several years) 

Martin being concerned about pensioners not wanting to up thier risk profile? Surely thats a huge minority of pensioners still able to stick 20k into an isa each year?

Seems like a good move to me and I would be fine with £5000 limit. Even though it would have a negative effect on me personally. 

InvesterJones

kimwp said:

It's completely bonkers, there are people who need to have a large cash buffer to protect them against the market lows - retired people and other people who want to save up to not work for a while. 

How will it work if you have stocks and shares ISAs and sell them, does it have to come out of the ISA wrapper if it's more than you can add to a cash ISA that year? I can only see it making the rules more complicated - and as Martin says in his article, things will rebalance with more cash-like offerings in stocks and shares ISAs, but the general public won't understand them. There's already a tax advantage (capital gains allowance) of investing - far better (if wanting to increase investing), to push that back up again, so more experienced investors are drawn to those and less sophisticated/cautious savers don't have to risk their life savings.

Remember the savings themselves are not taxed. Only the income they generate. People without other incomes can earn a large amount of interest before it starts to be taxed.

Sg28 said:

Surely this is about raising tax rather than encouraging investment. 

In 1999 the cash isa limit was £3000. Adjusted for (the boe's) inflation this gives around £5,750. So why give well off people such a big tax break? Anyone who can afford to put £20k a year into an isa can afford to pay a bit more tax. (For context I've been maxing my isa for several years) 

Martin being concerned about pensioners not wanting to up thier risk profile? Surely thats a huge minority of pensioners still able to stick 20k into an isa each year?

Seems like a good move to me and I would be fine with £5000 limit. Even though it would have a negative effect on me personally. 

I think if it was about raising tax then they'd lower the total limit, but it sounds like the £20K limit is staying.

I'd rather they just removed complexity and put it all into the same 20K contribution wrapper - that'd likely encourage more people to switch between stocks and shares and cash as relevant for an individuals needs (thus reduce people keeping it in cash for the long term), plus doing something about that stamp duty man!

daveyjp

Just set a maximum limit for cash which can be held in ISAs.  Make it high enough to accommodate anyone who wants lower risk - £250k will fund a decent retirement income.    There's a limit for Premium Bonds and no one is moaning it should be higher.

Area88

Sg28 said:

Surely this is about raising tax rather than encouraging investment. 

In 1999 the cash isa limit was £3000. Adjusted for (the boe's) inflation this gives around £5,750. So why give well off people such a big tax break? Anyone who can afford to put £20k a year into an isa can afford to pay a bit more tax. (For context I've been maxing my isa for several years) 

Martin being concerned about pensioners not wanting to up thier risk profile? Surely thats a huge minority of pensioners still able to stick 20k into an isa each year?

Seems like a good move to me and I would be fine with £5000 limit. Even though it would have a negative effect on me personally. 

What about young people who have no savings? They will be disadvantaged against people who maxed out their isas for years in a row.

We are taxed enough already in this country. What Rachel Reeves is doing is political suicide. The banks and building societies have warned her against doing it since it will limit lending, including mortgages. 

boingy

It smacks a little of desperation rather than a some grand plan and it's another vote loser. 

ColdIron

Sg28 said:

Martin being concerned about pensioners not wanting to up thier risk profile? Surely thats a huge minority of pensioners still able to stick 20k into an isa each year?

Struggling with with the idea of a huge minority

Those pensioners may want to reduce their risk profile by moving their investments into cash. To avoid such an obvious dodge as subscribing £20,000 into a S&S ISA and then immediately transferring to cash some restrictions will have to be introduced. They existed before the equalisation of allowances including I recall rules disallowing investing in near cash investments, Money Market Funds etc

I'm not getting the feeling that the changes have been well thought out. Will they be brutal, one size fits all or sophisticated and introduce extra work and therefore costs upon the ISA providers?

But I agree with Martin, this is 'p*ss people off economics'

masonic

daveyjp said:

There's a limit for Premium Bonds and no one is moaning it should be higher.

Really? 

https://forums.moneysavingexpert.com/discussion/6245580/march-budget-21-premium-bond-limit-increase

https://forums.moneysavingexpert.com/discussion/comment/81508510/#Comment_81508510

Kim_13

I do think the Cash ISA limit used to be a realistic savings target for most people (of course there would be those that could barely save at all and and those who could save more - those maxing out the £20,000 allowance every year with new money.) If the limit is cut to the speculated level then I will probably max it out each year to be on the safe side, rather than making extensive use of Regular Savers as is the case currently.

masonic

One thing they could do to slightly reduce the impact is to make all cash ISAs flexible.

Altior

As I've stated in the past, interest on cash savings predominately protects the capital from inflation erosion. The interest is not therefore really income, it's standing still in real terms. If the interest is scalped by the tax man, it will be effective net erosion.