ISA limits increasing again. Why?

[77ss]

It is quite simply a Tory bung to the comfortably off. Reflect - how many people do you think can afford to tuck away 20K a year

It's 40K a year for a married couple.

Not many younger couples can afford to do that, no doubt.

I now begin to understand your earlier complaint about the top one percent! As I see it, you clearly don't live in the real world.

"Not many"? Bloody few would be more like it. Younger or older. The median household disposable income for 2015 was about £26,000. Just think about that. Doesn't leave too much room to tuck away £40,000 does it?

[Lootman]

It is quite simply a Tory bung to the comfortably off. Reflect - how many people do you think can afford to tuck away 20K a year

It's 40K a year for a married couple. Not many younger couples can afford to do that, no doubt.

I now begin to understand your earlier complaint about the top one percent! As I see it, you clearly don't live in the real world.

"Not many"? Bloody few would be more like it. Younger or older. The median household disposable income for 2015 was about £26,000. Just think about that. Doesn't leave too much room to tuck away £40,000 does it?

It would be useful to see numbers from the government on take-up rates for ISAs. But I'd be willing to bet it is more than you think.

As an example, I read somewhere that there are now over two million millionaires in the UK. I'd bet that many of them would be able to contribute 40K a year to their ISA, in many cases via "Bed and ISA". In fact anyone with 40K or more in taxable investments would be able to contribute 40K to at least one year's ISA.

And you could make much the same criticism about the rules about how much can be contributed to a pension plan and enjoy a tax deduction for doing so.

[csearle]

I took advantage of the limits to port my investments (via cash) into my ISA. At first the limits felt too small, but now that I've completed that task they just irritate me because I can't generate sufficient spare cash to utilise then fully.

Chris

[swill453]

As an example, I read somewhere that there are now over two million millionaires in the UK.

According to the Telegraph last year, one million British households had over a million dollars excluding property.

http://www.telegraph.co.uk/business/201 ... -excludin/

Scott.

[BusyBumbleBee]

What we mustn't forget is the true history of ISAs (and pensions including the Stakeholder pension)

The predecessor of the ISA was the PEP and the Single Company PEP/b] (9K per annum between them and [b]TESSAs (about £1800 per year in a tax exempt environment) and of course the pensions. The Stakeholder introduced in 2001 was targeted at lower income folks and the limit was set at £3,600 gross (£2,880 net today). The "top up" money from Gov't comes regardless whether there is any income tax to set it against.

Then along came culpability Brown (1996?) who abolished Advance Corporation tax - and thereby the refunds that went into pension funds and PEPS (and, of course, VCT dividends) and then proceeded to introduce the ISA with a lower upper limit and no tax refunds. As a sop he gave 10% on dividends for 5 years. So a dividend income of £100 used to get 25% added but for the next five 5 years had 11.11% added and then nothing was added.

So 20 years ago you could invest 10,800 in tax advantaged schemes and now you can invest £20K. 20 years ago you got an extra 25% for all dividends within those PEPs and Pensions - now you get nothing.

culpability Brown pinched most of the tax advantages and possibly caused the pension underfunding we have to live with today.

So the increase in the ISA limit scarcely puts us to where we would have been without Culpability Brown

What we need now is an increase in the Stakeholder limits which would really help the people who have more than "just about managing" funds. A limit of £5K gross per annum would probably be reasonable.

[Alaric]

What we need now is an increase in the Stakeholder limits which would really help the people who have more than "just about managing" funds. A limit of £5K gross per annum would probably be reasonable.

Stakeholder pensions are just forms of Personal Pension, just as are SIPPs. As such they are subject to the same contribution limits which broadly are £ 40,000 per year or your annual salary if lower. The £ 3,600 gross is the amount you are allowed to contribute if you have no earned income at all. As such it applies to SIPPs just as much as it does to Stakeholder pensions.

"Stakeholder" was just government branding for Personal Pensions which had restricted levels of charges.

I was trying to recall the history of the £ 3600 limit. It hasn't been increased for a number of years and would have been first introduced back in 1988 with Personal pensions.

[melonfool]

What we mustn't forget is the true history of ISAs (and pensions including the Stakeholder pension)

The predecessor of the ISA was the PEP and the Single Company PEP/b] (9K per annum between them and [b]TESSAs (about £1800 per year in a tax exempt environment) and of course the pensions. The Stakeholder introduced in 2001 was targeted at lower income folks and the limit was set at £3,600 gross (£2,880 net today). The "top up" money from Gov't comes regardless whether there is any income tax to set it against.

Then along came culpability Brown (1996?) who abolished Advance Corporation tax - and thereby the refunds that went into pension funds and PEPS (and, of course, VCT dividends) and then proceeded to introduce the ISA with a lower upper limit and no tax refunds. As a sop he gave 10% on dividends for 5 years. So a dividend income of £100 used to get 25% added but for the next five 5 years had 11.11% added and then nothing was added.

So 20 years ago you could invest 10,800 in tax advantaged schemes and now you can invest £20K. 20 years ago you got an extra 25% for all dividends within those PEPs and Pensions - now you get nothing.

culpability Brown pinched most of the tax advantages and possibly caused the pension underfunding we have to live with today.

So the increase in the ISA limit scarcely puts us to where we would have been without Culpability Brown

What we need now is an increase in the Stakeholder limits which would really help the people who have more than "just about managing" funds. A limit of £5K gross per annum would probably be reasonable.

1) there is no limit of £3,600 on stakeholders, that limit is only for non-earners only - the limit is the same as for all types of pension (100% of income or £40kpa whichever is lower, plus carried forward allowances).
2) his name is Gordon Brown

Mel

[PinkDalek]

2) his name is Gordon Brown

Mel

More accurately, James Gordon Brown.

[melonfool]

What we need now is an increase in the Stakeholder limits which would really help the people who have more than "just about managing" funds. A limit of £5K gross per annum would probably be reasonable.

Stakeholder pensions are just forms of Personal Pension, just as are SIPPs. As such they are subject to the same contribution limits which broadly are £ 40,000 per year or your annual salary if lower. The £ 3,600 gross is the amount you are allowed to contribute if you have no earned income at all. As such it applies to SIPPs just as much as it does to Stakeholder pensions.

"Stakeholder" was just government branding for Personal Pensions which had restricted levels of charges.

I was trying to recall the history of the £ 3600 limit. It hasn't been increased for a number of years and would have been first introduced back in 1988 with Personal pensions.

No, they're newer than that, I recall them arriving when I was working in HR and that wasn't as far back as 1988. Wiki tells me 2001, which seems too recent. https://en.wikipedia.org/wiki/Stakehold ... ion_scheme

Mel

[PinkDalek]

No, they're newer than that, I recall them arriving when I was working in HR and that wasn't as far back as 1988. Wiki tells me 2001, which seems too recent. https://en.wikipedia.org/wiki/Stakehold ... ion_scheme

Mel

AJ Bell (in November 2015) also say 2001:

The £3,600 annual allowance for non-earners has not been increased since it was introduced in 2001 and its value has been eroded in real terms by inflation. The allowance should now be increased to £4,080 ...

From https://www.ajbell.co.uk/news/autumn-st ... -allowance

[melonfool]

No, they're newer than that, I recall them arriving when I was working in HR and that wasn't as far back as 1988. Wiki tells me 2001, which seems too recent. https://en.wikipedia.org/wiki/Stakehold ... ion_scheme

Mel

AJ Bell (in November 2015) also say 2001:

The £3,600 annual allowance for non-earners has not been increased since it was introduced in 2001 and its value has been eroded in real terms by inflation. The allowance should now be increased to £4,080 ...

From https://www.ajbell.co.uk/news/autumn-st ... -allowance

Doesn't time fly? Sigh.

Mel

[BusyBumbleBee]

1) there is no limit of £3,600 on stakeholders, that limit is only for non-earners only - the limit is the same as for all types of pension (100% of income or £40kpa whichever is lower, plus carried forward allowances).
2) his name is Gordon Brown
Mel

1 Agreed - should have said non-earner's limit is £3600 - which does of course include pensioners, wives - who don't work - and now children. However shouldn't 'income' read 'earnings'?
2. he is culpable therefore Culpability Brown is a good name for him.

It is only fair to point out though that his Tory predecessor started the rot when he reduced the ACT from 33% to 25%

[Kantwebefriends]

Tory govt - protecting the priveledged rich.

However you look at it, and whether you support them or not (I do), that's pretty much the only explanation for the increase in both ISA allowances ....

More likely that it's a balancing act with the reduction of the amounts you can save in pensions: the LTA and AA have been "bigly" reduced since they were introduced. The motive is presumably that pensions defer taxation whereas the ISAs don't: HMRC gets its chunk before you salt the money away in an ISA; it gets nowt from the pension until you draw it.

[scrumpyjack]

Apart from tyhe other points made in this thread, don't forget that by encouraging people to save their money in an ISA and hang on to it, HMG will, from richer investors at least, eventually get back 40% of it in Inheritance tax.

[Lootman]

Apart from the other points made in this thread, don't forget that by encouraging people to save their money in an ISA and hang on to it, HMG will, from richer investors at least, eventually get back 40% of it in Inheritance tax.

Ironic that the two things that give you the best tax advantages whilst you are alive (no CGT on your primary residence and no taxes at all on ISAs) are the two types of asset that are the hardest to shelter from tax upon your inevitable death.

I'm not a conspiracy theorist but I do wonder, as you suggest, if this is all part of a cunning plan by HMG to lull people into these account types and asset classes, only to ultimately get the last laugh. Because the taxes on interest, dividends and gains are trivial compared to seizing 40% of your net worth.

And that argues, at the right moment, to liquidate such assets and from that point onwards focus on mitigating IHT even if it means paying a little more tax in the interim here and there. Keep your eyes on the bigger prize.

[genou]

I'm not a conspiracy theorist but I do wonder, as you suggest, if this is all part of a cunning plan by HMG to lull people into these account types and asset classes, only to ultimately get the last laugh. Because the taxes on interest, dividends and gains are trivial compared to seizing 40% of your net worth.

Ah, but if it was a conspiracy they wouldn't let you put AIM shares in an ISA. Correctly chosen and held for two years they would be exempt from IHT.

[gryffron]

I'm not a conspiracy theorist but I do wonder, as you suggest, if this is all part of a cunning plan by HMG to lull people into these account types and asset classes, only to ultimately get the last laugh. Because the taxes on interest, dividends and gains are trivial compared to seizing 40% of your net worth.

So you are suggesting that HMG are guilty of financial planning further ahead than the next election? That's a pretty far fetched conspiracy.

Gryff

[Lootman]

I'm not a conspiracy theorist but I do wonder, as you suggest, if this is all part of a cunning plan by HMG to lull people into these account types and asset classes, only to ultimately get the last laugh. Because the taxes on interest, dividends and gains are trivial compared to seizing 40% of your net worth.

Ah, but if it was a conspiracy they wouldn't let you put AIM shares in an ISA. Correctly chosen and held for two years they would be exempt from IHT.

True but not many people are going to put 100% of their ISA into qualifying AIM shares due to the risk involved. And there is nothing to stop the government suddenly deciding that AIM shares no longer get an IHT break. So the problem stands.

[Lootman]

I'm not a conspiracy theorist but I do wonder, as you suggest, if this is all part of a cunning plan by HMG to lull people into these account types and asset classes, only to ultimately get the last laugh. Because the taxes on interest, dividends and gains are trivial compared to seizing 40% of your net worth.

So you are suggesting that HMG are guilty of financial planning further ahead than the next election? That's a pretty far fetched conspiracy.

That cuts both ways. You can engage in an elaborate IHT-avoidance strategy, like being 100% invested in qualifying AIM shares, only to have the government disallow that exemption. And that's the problem with any IHT planning.

The only guaranteed way to avoid IHT and be immune from the government changing the rules is to remove yourself, your assets and your beneficiaries from UK jurisdiction, ideally to a nation that doesn't have an inheritance or estate tax. And that means cashing in UK properties and ISAs which, like I said, are the very things that are highly tax-efficient while you are alive.

[Alaric]

So the problem stands.

Many years ago, on TMF, there was an advisor who was hostile to ISAs. Instead he advocated insurance based solutions which coincidently paid much higher commissions. Did he perhaps have a point regarding IHT treatment?