Potential ISA Limits

[stevensfo]

The journos have picked up on it:

https://www.thisismoney.co.uk/money/sav ... udget.html

The comments pretty sum up what most people think!

Steve

[absolutezero]

yet the proposal is to limit ISAs to just £100,000.

You're all getting your knickers in a knot over something that has not come from a political party that will form a government,
It's from a think tank.
The way you're talking on here is that it's a Labour proposal. It isn't (as yet)

[forgotusername]

I take issue with the basic premise of this Resolution Foundation report. It claims that 'The Chancellor can address both problems in his upcoming Budget by massively expanding Help to Save for low-income families, and scaling back tax-free savings for already very-rich individuals.'
So let’s examine the argument that if you have over £100,000 in savings you must be rich or very rich. That’s total nonsense of course. Firstly, why haven’t the authors considered the age of savers? It follows that if one has saved for a lifetime, one is likely to have accumulated more than someone in their twenties. Someone in their seventies of eighties will have been able to put aside after tax earnings for 24 years since the first PEPs were introduced in 1986. That works out at less than £3000 a year to get to £100,000. Is £3000 a year the definition of a rich person?

Many of those with ISAs worth more than £100,000 have invested in shares, not cash accounts. They will have taken on risk because shares can go down as well as up. Inside an ISA there is no government subsidy if you lose money so is it reasonable to penalise those who took that risk and made money?

The report claims we are not a nation of savers and that the government should do more to help those with little or no savings to save. Very laudable sentiment but do you remember when they did just that? Gordon Brown gave some families a voucher to set up a Child Trust Fund account. The poorest families got twice as much as the less poor. The take up was patchy and some years later 1.8million vouchers were not claimed - and so the tax-man invested it on their behalf.

Now, as many of these children turn 18, it's emerged that 140,000 mature accounts - amounting to £209million - remain unclaimed.
https://www.mirror.co.uk/money/thousand ... n-23563815

Another example of well intentioned help failing is quoted by the report. “Help to Save – where people are able to save up to £50 a month and receive a 50 per cent top-up from Government – is the only savings policy targeted at low-income families as eligibility is determined by benefit receipt.
However, take-up is low, with under one-in-ten eligible participants using it.”

It’s hardly the fault of the government or rich people if individuals cannot motivate themselves to take free money.

Frankly, I think the government should ignore calls to incentivise savings by the least well off and just give them free money to spend whilst they need support. The mechanisms already exist so why create more bureaucracy in setting up something new? Income tax is a proven mechanism for raising sufficient funds and can be aligned to ability to pay.

Let me also take issue with the inclusion of Lifetime ISAs. The report says:

Roughly half of the £670 million of Lisa tax breaks are estimated to be going to the top five richest households. That’s quite odd since LT ISAs were only introduced in 2017.The maximum contribution is £4000 a year, plus 25% Government bonus. I make that a maximum of £25,000. That definition of “rich” is stretched beyond credibility. Who "estimated" that anyway?

To take one example:
I know of a relation who is 21, works for the NHS and realises they are unlikely to earn enough to support a mortgage to buy their own home any time soon. They are contributing to a LT ISA because it comes with a government 25% bonus to any subscription. The accumulated savings can only be used to put down a deposit on their first home or retained to provide a pension. Are we really arguing that this person is deemed too “rich” to deserve any assistance?

What of those who are too old or infirm to be able to earn again by working? Is it right that they should have the savings they planned to use for care or a comfortable retirement regarded as unwarranted or undeserved and up for grabs?

In summary, the report is badly flawed. It is biased to present evidence to support the pre- conceived solution.

[stevensfo]

yet the proposal is to limit ISAs to just £100,000.

You're all getting your knickers in a knot over something that has not come from a political party that will form a government,
It's from a think tank.
The way you're talking on here is that it's a Labour proposal. It isn't (as yet)

I've always wondered what exactly is a 'think tank'.

Meanwhile, a comment about the proposal:

Save money by scrapping the Resolution Foundation.

https://www.thisismoney.co.uk/money/sav ... l#comments


Steve

PS Isn't it 'knickers in a twist'? Never heard of 'in a knot', though given the girls we had in our sixth form, I wouldn't be surprised!

[hiriskpaul]

It would raise £1.3 billion by adding extra tax onto those that have saved.

I suppose that would help towards the ~£2 billion being spent per year alone on hotels for illegal migrants

But it wouldn't be 1.3 billion of EXTRA tax. It would just raise it sooner (and less - 20% CGT) rather than leaving it to attract IHT (40%) later.
They never mention that point which again illustrates their lack of objectivity and the shallowness of their analysis.

Well no, there would usually be extra tax. Take 100k which you grew in an ISA to 110k, but only grew to 108k if taxed. The IHT if the growth had been in the ISA would be 44K. The combined IHT and income/capital gain tax for an unsheltered investment would be 45.2k.

I think there would be other consequences which might reduce the total tax take though. If I was taxed on the investment income and gains above 100k I would seek to reduce that tax, most probably by giving more of it away as PETs.

I can see the arguments against what the paper is proposing to do with the money raised, but not really against the more general point of whether the ISA tax relief given to those with more than 100k in ISAs is a good use of tax relief. Why should those into BTL not get tax relief? Or those on PAYE be charged less tax? Or UK companies get higher corporation tax relief on particular types of investment? What makes someone with > £100k in an ISA a deserving case?

[Lootman]

I can see the arguments against what the paper is proposing to do with the money raised, but not really against the more general point of whether the ISA tax relief given to those with more than 100k in ISAs is a good use of tax relief. Why should those into BTL not get tax relief? Or those on PAYE be charged less tax? Or UK companies get higher corporation tax relief on particular types of investment? What makes someone with > £100k in an ISA a deserving case?

The broader point you seem to be making there is that any new tax or tax increase should target the well off, and not the rest. But if that were universally adopted then there would be no "well off". You'd keep taxing the rich until they were poor.

The essence of a good tax system is that it is broad based so that everyone pays something, so that marginal rates can be as low as possible. This proposal is an overt attack on success: envy dressed up as equity.

[Urbandreamer]

The essence of a good tax system is that it is broad based so that everyone pays something, so that marginal rates can be as low as possible. This proposal is an overt attack on success: envy dressed up as equity.

I think that we need to bin the use of words like good or fair. Nobody can agree upon what they mean.

However I would argue that, given the tax system supports the work of the state, then everyone who values such work should be both happy and required to pay. That means that I think even the poorest, should pay tax. Also that the "rich" should not be penalized for the "sin" of being "rich", since they gain no increased benefit from the state.

There are many who disagree with my view, arguing that the rich should pay and the poor benefit. Can I suggest that while it may have little to do with taxation, reading "The road to serfdom" would be enlightening.

Of course we do have "hidden" taxes like VAT on goods and services, which everyone who buys or uses pay. Why tax savings, or debt? Because it works, rather than is "good" or "fair". It's all about what "works". Hence VAT. Even the poor pay it.

Ps, the report is not really about ISA restrictions, but a call for state handouts. Which would have to be paid for. Hence taxing those with more money saved than "they should".

[GeoffF100]

It is being driven by the entitlement ethic of our society.

Entitlement to low tax on savings?

[GeoffF100]

Are they not saying that accumulation of wealth in private hands should be restricted, even where it has been financed by deferred spending of taxed earnings?

No they are not. You are free to accumulate wealth, but they want you to pay what they consider to be fair taxes. That will slow the rate at which you can accumulate wealth, of course.

[hiriskpaul]

I can see the arguments against what the paper is proposing to do with the money raised, but not really against the more general point of whether the ISA tax relief given to those with more than 100k in ISAs is a good use of tax relief. Why should those into BTL not get tax relief? Or those on PAYE be charged less tax? Or UK companies get higher corporation tax relief on particular types of investment? What makes someone with > £100k in an ISA a deserving case?

The broader point you seem to be making there is that any new tax or tax increase should target the well off, and not the rest. But if that were universally adopted then there would be no "well off". You'd keep taxing the rich until they were poor.

The essence of a good tax system is that it is broad based so that everyone pays something, so that marginal rates can be as low as possible. This proposal is an overt attack on success: envy dressed up as equity.

No, my broader point is why should some activities attract tax relief and others not? To be specific, what is so special about ISAs > 100k that means income and gains on them should not be taxed?

As for taxing success, what would you tax instead? Taxing failure would not be particularly lucrative

Curiously we often give tax relief on failure, but not usually on success.

Most profitable activities are, almost by definition, successful, so why should they all be taxed, but ISAs>100k not taxed?

[GeoffF100]

It would raise £1.3 billion by adding extra tax onto those that have saved.

I suppose that would help towards the ~£2 billion being spent per year alone on hotels for illegal migrants

Locking up migrants is a vote winner. Giving generous tax relief to large ISAs does not win many votes.

[GeoffF100]

But it wouldn't be 1.3 billion of EXTRA tax. It would just raise it sooner (and less - 20% CGT) rather than leaving it to attract IHT (40%) later.

The government wants to raise money to buy themselves votes. They do not care much about raising money for future governments.

[Kantwebefriends]

£100,000 = a couple of years of care home fees.

[Bialystock]

Capping ISA at £100k would make more people retire early, exacerbating the economy problem of over 50’s leaving the workforce- a stupid idea really!

[scrumpyjack]

£100,000 = a couple of years of care home fees.

Less, I think! I think it is probable that Chancellor Rachel Reeves will simply disallow new subs to an ISA if the total of the individual's ISAs is over a certain amount. 100k is too low, maybe 250k. The point that many people will have invested in ISAs as part of their retirement planning is important. The next Labour government will be keen to show they are not too left wing, as Blair did when he became PM, so I think they will leave ISAs untouched apart from that.

[GeoffF100]

Capping ISA at £100k would make more people retire early, exacerbating the economy problem of over 50’s leaving the workforce- a stupid idea really!

Why do you think that? I retired when I thought that I had made enough money. If taxes are higher, we need more money, not less, to fund our retirement, so we have to work longer.

[Myfyr]

Capping ISA at £100k would make more people retire early, exacerbating the economy problem of over 50’s leaving the workforce- a stupid idea really!

Why do you think that? I retired when I thought that I had made enough money. If taxes are higher, we need more money, not less, to fund our retirement, so we have to work longer.

Personally I would retire and just use my ISA which is well in excess of £100k (like many here I suspect) and let my crystallised SIPP grow insofar as no LTA charge arises at age 75. Basic rate tax should cover any withdrawals very easily I would think. And no inheritance tax (currently anyway).

Government will get a lot less overall as there won’t be a nice fat juicy ISA to take 40% of when I am gone. And no NI on a salary as I won’t be getting one any more.

I doubt any government would do this somewhat draconian measure anyway. Even Corbyn never suggested such a thing. There was always a form of protection when pension LTA was cut and they would probably do the same here if they did do anything.

I bet most MPs have loads invested in ISAs and turkeys don’t vote for Christmas!

[SebsCat]

Government will get a lot less overall as there won’t be a nice fat juicy ISA to take 40% of when I am gone.

I fully agree with you that there is little chance of any government capping ISAs (and certainly not at just £100k). But if they did think they had the votes to do that then why wouldn't they also go after SIPPs and especially the IHT break? There's no fundamental reason why SIPPs in drawdown should not suffer the same sort of reductions that apply to DB pensions or annuities on death. OK the money would go to HMRC rather than the scheme or insurer but it wouldn't be that hard to argue that they should at least be subject to IHT on the grounds of "fairness" with other pensions.

[Myfyr]

Government will get a lot less overall as there won’t be a nice fat juicy ISA to take 40% of when I am gone.

I fully agree with you that there is little chance of any government capping ISAs (and certainly not at just £100k). But if they did think they had the votes to do that then why wouldn't they also go after SIPPs and especially the IHT break? There's no fundamental reason why SIPPs in drawdown should not suffer the same sort of reductions that apply to DB pensions or annuities on death. OK the money would go to HMRC rather than the scheme or insurer but it wouldn't be that hard to argue that they should at least be subject to IHT on the grounds of "fairness" with other pensions.

You will get no argument with me on that score.

It is certainly less unfair than messing around with current ISAs well in excess of £100k. That would certainly make me consider retiring early, though to be fair it wouldn’t be THAT early, given my age - I seem to have been afflicted with “one more year” syndrome for some years and this sort of move on ISAs would be guaranteed to cure that, and the government / HMRC would be the bigger losers.

There is no NI on any drawdown income and I am fully paid up for the state pension since 2020 per the government gateway forecast.

Haven’t Hargreaves Lansdown got a couple of thousand ISA millionaires? Wish I was one of them.

[GeoffF100]

Even Corbyn never suggested such a thing. There was always a form of protection when pension LTA was cut and they would probably do the same here if they did do anything.

It may have been beyond Corbyn, but not the Tories. They have frozen the LTA for the next five years while inflation is roaring away at over 10%. There is no protection for that. The taxation on unsheltered equities is also much less favourable than it was under Labour. Sense the way the wind is blowing.