Potential ISA Limits

[EthicsGradient]

Ok. Point accepted. My figure came from a generic google search which may well be out of date. But even the current number is still WAY behind all/most of Europe. So arguing we are at the peak of the Laffer curve still looks unlikely.

Just because some other country has a different rate of taxation tells us nothing about where that country is on the Laffer curve.

It is quite possible, if not probable, that other countries, some of which are known for more socialist leanings than the U.K., have tax rates that are detrimental to the amount of tax collected because of the political consequences of reducing the rates.

No, that doesn't sound credible. However much you'd like to think that "some countries" have masses of voters that like seeing rich people pay extra tax just for the sake of seeing them suffer, that's not what real-world people are like. People do like seeing well-funded government services, and it varies between countries how much overall taxation they're willing to have for that, and they may be happy to have the rich pay a higher proportion than they do in the UK, but the idea that in any democracy there would be significant votes lost over decreasing top rates of taxation, if that were to increase the overall government revenue, is just moonshine.

When people have tried to find an optimal marginal tax rate for revenue, it's come out at over 70%. Some people do get that high - eg people in work but on Universal Credit at 70%, or the 62% example for someone moving above a £100k salary.

[JohnB]

There are 3 ways ordinary people save with tax breaks. 1) Pensions, 2) ISAs 3) Owning their own houses. I notice that only pensions have a cap in terms of the £1m LTA, and it would clearly a problem to introduce a much lower ISA LTA. But the elephant in the room is house valuations. Many people have vastly more wealth in their houses than anything else, but this is not out of choice, its hard to realise, and pandered to by governments with the CGT exception and bizarre IHT allowance. If you introduce an ISA cap, how many people will think to buy a bigger house, as "house prices always go up long term", and they'd not pay tax on the gains. Do we really want money to come out of stock markets and houses prices to rise further?

[Lootman]

Ok. Point accepted. My figure came from a generic google search which may well be out of date. But even the current number is still WAY behind all/most of Europe. So arguing we are at the peak of the Laffer curve still looks unlikely.

Just because some other country has a different rate of taxation tells us nothing about where that country is on the Laffer curve.

It is quite possible, if not probable, that other countries, some of which are known for more socialist leanings than the U.K., have tax rates that are detrimental to the amount of tax collected because of the political consequences of reducing the rates.

Yip, it could be that the marginal tax rate that changes behaviour varies by culture. So a Dane is happy to pay 65% but an American baulks at 50%.

My instinct is that 40% to 50% is a limit for many Brits.

[joey]

Just because some other country has a different rate of taxation tells us nothing about where that country is on the Laffer curve.
It is quite possible, if not probable, that other countries, some of which are known for more socialist leanings than the U.K., have tax rates that are detrimental to the amount of tax collected because of the political consequences of reducing the rates.

Strange how they manage to collect so much then?

Everytime tax increases are even vaguely suggested, those against just shout "Laffer Curve! Laffer Curve!". I'm not suggesting the Laffer Curve isn't real. But I repeat my original question - what evidence can you provide that we are anywhere near the peak?

I can’t provide any evidence about where this country may be on the curve. I am simply pointing out that to use another country’s tax rate as evidence about the Laffer curve is wrong. If it were right, couldn’t someone just as well point to the tax rates in a country that has a lower rate than the U.K. and say “There, proof!”?

[joey]

Just because some other country has a different rate of taxation tells us nothing about where that country is on the Laffer curve.

It is quite possible, if not probable, that other countries, some of which are known for more socialist leanings than the U.K., have tax rates that are detrimental to the amount of tax collected because of the political consequences of reducing the rates.

No, that doesn't sound credible. However much you'd like to think that "some countries" have masses of voters that like seeing rich people pay extra tax just for the sake of seeing them suffer, that's not what real-world people are like. People do like seeing well-funded government services, and it varies between countries how much overall taxation they're willing to have for that, and they may be happy to have the rich pay a higher proportion than they do in the UK, but the idea that in any democracy there would be significant votes lost over decreasing top rates of taxation, if that were to increase the overall government revenue, is just moonshine.

When people have tried to find an optimal marginal tax rate for revenue, it's come out at over 70%. Some people do get that high - eg people in work but on Universal Credit at 70%, or the 62% example for someone moving above a £100k salary.

You managed to construct a strawman argument and then won it. Well done! I never said anything about top rates of tax, rich people, or whether the great unwashed masses want to see rich people suffer for the sake of it. I simply said that the tax rate of another country offers no insight into where they are on the Laffer curve.

[Lootman]

I can’t provide any evidence about where this country may be on the curve. I am simply pointing out that to use another country’s tax rate as evidence about the Laffer curve is wrong. If it were right, couldn’t someone just as well point to the tax rates in a country that has a lower rate than the U.K. and say “There, proof!”?

It may also vary by type of tax. Many folks do a lot to avoid IHT at 40%, for example.

OTOH folks are sanguine about CGT at 10% or 20%, but may adopt avoidance of CGT at 40% or 45%.

[1nvest]

So in addition to disincentives, such as a GP taking 12 years to qualify, who then opts to quit 12 years after that as their life time allowance limit is reached. Or uni-students whose tax rates increase to in excess of 40% once they earn more than the minimum wage. Now the next considered disincentive is to induce a tendency to not bother saving.

Confused, I thought it was a Conservative government. Oh I get it, with mass migration into the UK, incentivise others to leave the UK to better balance the books. Flight of the 1% richest paying a third of the total income tax take, and the remainder are left with having to pay 50% more in taxation.

But at a cost to GDP GDP GDP GDP GDP GDP

With a tendency towards having to fund private health care, so the inclination toward becoming a perpetual traveller increases. 4 months in each of three locations, follow pleasant weather. Final destination Thailand where late life care/nursing is supposedly fantastic, and by comparison relatively inexpensive.

Where would other I'm Sailing Abroad'ers opt for their three locations/seasons?

[tjh290633]

When people have tried to find an optimal marginal tax rate for revenue, it's come out at over 70%. Some people do get that high - eg people in work but on Universal Credit at 70%, or the 62% example for someone moving above a £100k salary.

Didn't Nigel Lawson find a way to increase receipts by lowering tax rates, making 40% the top rate?

TJH

[MrFoolish]

I'm sure most MPs have a decent amount locked away in ISAs, so I wouldn't worry about it.

[Lootman]

When people have tried to find an optimal marginal tax rate for revenue, it's come out at over 70%. Some people do get that high - eg people in work but on Universal Credit at 70%, or the 62% example for someone moving above a £100k salary.

Didn't Nigel Lawson find a way to increase receipts by lowering tax rates, making 40% the top rate?

Reagan too. Top rate of US income tax is 37%. US nil rate band for its IHT is over 10 million.

[hiriskpaul]

I have long thought that a cap an ISAs was coming, but it would be complicated to introduce. Simplest way would be to abolish ISAs and put up the interest, dividend and CGT allowances. They could set the starting valuations of securities and funds to the closing values on the day before ISAs were abolished, in much the same way that purchase costs are reset when someone dies.

No doubt the allowances would gradually be reduced over time again.

[1nvest]

Didn't Nigel Lawson find a way to increase receipts by lowering tax rates, making 40% the top rate?

Reagan too. Top rate of US income tax is 37%. US nil rate band for its IHT is over 10 million.

But that incentivises working hard and saving, funding ones own housing, medical care and retirement, rather than relying upon others.
GDP GDP GDP
If families save up and pass on enough wealth for their children to be privately educated, own home, fund own medical care, and late life nursing whilst also net contributing into the general tax pool rather than being net beneficiaries ... well that would be too frowned upon as being a possible viable policy in the UK.

[1nvest]

I have long thought that a cap an ISAs was coming, but it would be complicated to introduce. Simplest way would be to abolish ISAs and put up the interest, dividend and CGT allowances. They could set the starting valuations of securities and funds to the closing values on the day before ISAs were abolished, in much the same way that purchase costs are reset when someone dies.

No doubt the allowances would gradually be reduced over time again.

I recall a budget some years back where the wording was along the lines of "ISA dividends continue to remain tax exempt". A indication that removal of dividend tax exemptions within ISA were back-in-mind of being withdrawn. Coupled with a £100,000 max ISA capital cap where that was deflated away (not increased) and across a period of high inflation ISA's could within a relatively short period of time become predominately for savers with relatively little capital. General Accounts yearly capital gains tax exemption allowances are fading - replaced with £100K ISA caps, that also fade, and drag all of saving back into mainstream taxable.

[EthicsGradient]

No, that doesn't sound credible. However much you'd like to think that "some countries" have masses of voters that like seeing rich people pay extra tax just for the sake of seeing them suffer, that's not what real-world people are like. People do like seeing well-funded government services, and it varies between countries how much overall taxation they're willing to have for that, and they may be happy to have the rich pay a higher proportion than they do in the UK, but the idea that in any democracy there would be significant votes lost over decreasing top rates of taxation, if that were to increase the overall government revenue, is just moonshine.

When people have tried to find an optimal marginal tax rate for revenue, it's come out at over 70%. Some people do get that high - eg people in work but on Universal Credit at 70%, or the 62% example for someone moving above a £100k salary.

You managed to construct a strawman argument and then won it. Well done! I never said anything about top rates of tax, rich people, or whether the great unwashed masses want to see rich people suffer for the sake of it. I simply said that the tax rate of another country offers no insight into where they are on the Laffer curve.

No, that wasn't just what you "simply said". You proceeded to say "It is quite possible, if not probable, that other countries, some of which are known for more socialist leanings than the U.K., have tax rates that are detrimental to the amount of tax collected because of the political consequences of reducing the rates."

What I was arguing against was what you claimed was "probable". You reckon it's "probable" that some governments, because they are "socialist", keep their tax rates high, even though they know they'd collect more revenue with lower rates, because they also think they'd lose votes by decreasing tax rates. That would have to mean that their voters like to see other paying high taxes, rather than liking to see high government revenue to fund high government spending. I say your idea of what people are like is wrong.

Other posters are claiming that Lawson or Reagan "found a way to increase receipts by lowering tax rates". No, they claimed that would be the effect. But the economics study that is the basis for the article I linked to says the receipts are higher with rates well above the 40% or less that Reagan and Lawson instituted.

When Ronald Reagan arrived in Washington in 1981, circumstances were very different than they are today. Inflation was nearly 10 percent. The Federal Reserve had pushed interest rates into double digits. The federal debt was about half what it is today, measured as a share of the economy. The Reagan tax cut was huge. The top rate fell from 70 percent to 50 percent. The tax cut didn’t pay for itself. According to later Treasury estimates, it reduced federal revenues by about 9 percent in the first couple of years. In fact, most of the top Reagan administration officials didn’t think the tax cut would pay for itself. They were counting on spending cuts to avoid blowing up the deficit. But they never materialized.

https://www.brookings.edu/blog/up-front ... -tax-cuts/

[GeoffF100]

I have long thought that a cap an ISAs was coming, but it would be complicated to introduce. Simplest way would be to abolish ISAs and put up the interest, dividend and CGT allowances. They could set the starting valuations of securities and funds to the closing values on the day before ISAs were abolished, in much the same way that purchase costs are reset when someone dies.

No doubt the allowances would gradually be reduced over time again.

I agree. That is simpler than a £100K cap, and achieves the same end as my complicated suggestion. Cut the allowances to nearly nothing, and then give them back when the ISAs are abolished. Um...

[1nvest]

Or more.

Can't be more can it? The Government issues every £ and, as you say, takes it all back (eventually) through taxation.

There will be lost/destroyed currency as well as forgeries but it's all got to balance to zero (or as close to zero as possible)

One definition of money, is the transportable value for your work/effort. Currencies are deflated
(via inflation, which is just another form of taxation) and taxed away, and without investment so is your money. Fundamentally most people are slaves to (solely work for) the benefit of the state. Even today some are taken on for a year as a 'apprentice', paid £4.81/hour, less than £178/week for a 37 hour week. Self clothing/accommodating/transporting/feeding - perfectly legal slavery in 2023.

[joey]

No, that wasn't just what you "simply said". You proceeded to say "It is quite possible, if not probable, that other countries, some of which are known for more socialist leanings than the U.K., have tax rates that are detrimental to the amount of tax collected because of the political consequences of reducing the rates."

What I was arguing against was what you claimed was "probable". You reckon it's "probable" that some governments, because they are "socialist", keep their tax rates high, even though they know they'd collect more revenue with lower rates, because they also think they'd lose votes by decreasing tax rates. That would have to mean that their voters like to see other paying high taxes, rather than liking to see high government revenue to fund high government spending. I say your idea of what people are like is wrong.

Try coming down from your high horse just a touch? Or is it from your saddle where you speak to the real-people that you mentioned earlier, that apparently the rest of us can’t gauge?

Anyway. You have another non-sequitur in there. I’ll leave it to you to figure out what.

[hiriskpaul]

A few thoughts on ISAs.

The paper points out that a significant amount of the benefits of ISAs go to the already wealthy. I would have thought that was obvious, but there you go.

If ISAs were abolished, would the wealthy stop saving and/or spend all the savings that were in ISAs? I think the answer is probably no, or not to any significaant extent. I would not alter my behaviour simply because I could not get tax relief on investment income and gains, although I would probably bring forward gifts to the children and other relatives. I probably would alter the nature of some of my investments though, eg to factor in the tax on anything with a very high running yield.

If it is the case that the wealthy would continue to save, why do the wealthy need tax incentives to do so? Could that tax relief be better spent, eg in reducing tax elsewhere? (I would favour a cut in corp tax and removal of various "taperings").

I am not in favour of capping or abolishing ISAs because it certainly would increase our tax, but I cannot argue we either need or deserve the tax break.

Why should I get tax relief on ISA investments when say BTL investors or someone self employed who makes and sells things not get such tax relief?

[Lootman]

I have long thought that a cap an ISAs was coming, but it would be complicated to introduce. Simplest way would be to abolish ISAs and put up the interest, dividend and CGT allowances. They could set the starting valuations of securities and funds to the closing values on the day before ISAs were abolished, in much the same way that purchase costs are reset when someone dies.

No doubt the allowances would gradually be reduced over time again.

I agree. That is simpler than a £100K cap, and achieves the same end as my complicated suggestion. Cut the allowances to nearly nothing, and then give them back when the ISAs are abolished. Um...

Simpler in some ways but it will introduce more work for many, including HMRC. Brokers may have to change their systems also.

Firstly it could cause many investors to have to submit SA tax returns who do not have to currently.

Secondly I only have 10 positions in my taxable account but maybe 30 or so in my ISA. And my ISA has positions that are "messier" in tax terms. So that is dozens more dividends to report annually. And over time a lot more disposals to declare too.

If it happened in April I might ASAP offload all positions in my ISA and put the lot in Berkshire Hathaway, just to minimise hassles.

[thebarns]

I’m always a bit sceptical as to where the authors pull their statistics from…and how they wish to frame them to assist their often pre conceived conclusions.

I see one part of the report states that the average ISA wealth for anyone over 65 is £23K.

So setting a limit of over 4 times this at £100K might pass some sort of fairness test.

However, I’m not sure how this £23K was derived, it could be manipulated any number of ways - is it an average of just those over 65 that hold an Isa or does it somehow capture the total Isa wealth and divide it by all those aged 65 or over, whether they have an ISA or not.

Also, what about the individual that has a number of cash isas or share ISAs with different providers - I very much doubt HMRC, knowing their abject systems, have the data on the ISA wealth of each individual in this country, even more so those who currently are not required to submit tax returns.

What about the person with perhaps a small state pension and 500k of ISAs, split over 10 different accounts - do the authors of this report have access to info that allows them to attribute those 10 separate ISAs to one individual ? That person has no current requirement to submit a tax return.

I see the same manipulation of statistics all the time when the average pension pot is quoted, whether it is defined contribution or defined benefit.

Often the average pension pot is quoted but it is done so without knowing how many pension pots or defined benefit pensions an individual has amassed, before even getting into the length of time someone has been a member of said schemes and ensuring like is compared with like and the authors just use the figures to their own end, without ever properly explaining the limitations on their quoted statistics, depending on which particular point they are wishing to drive through.

I know, lies, damned lies and statistics.

And as someone else quite rightly pointed out, why dont the cosy civil servants/think tankers with their juicy defined benefit pensions, absolutely risk free, incredibly expensive to finance in accumulation and payout, think of ways of redistributing some of the stored wealth accumulated in these, as well as looking at some 65 year old self employed person, with no defined benefit pension, who has £400K in Isas, which have either had miserable cash returns over the last 10 years, or are at the constant mercy of stock and bond markets.