ISA limits increasing again. Why?

[stevensfo]

Note to Mods: Please move to Investing Strategies or another board if more appropriate.

It seems like yesterday that ISA allowances were quite low, went up to about 10000 pounds, then 15000, and now to be increased to 20K.

But why? Has anyone any thoughts on why the limits have gone up so much? I'm certainly not complaining. I treat my ssISA contributions as a very important and necessary supplement to my pension.

It seems to me that the ISAs are not protected in the same way as a pension. Now, I'm not one for conspiracy theories, but If I were a forward thinking Jeremy Corbyn sort of person, it seems a great way to get as many people as possible to build up nice pots ready for retirement, then suddenly announce that income from ISAs will count in means testing or be taxable or....etc.

Can we all sleep safely at nights secure in the knowledge that our ISAs are untouchable, or should we sell everything and invest in Mexican ladder making and tunnel digging companies?

Steve

[gryffron]

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, and IHT limits. Of course it allows the govt to point to the "increase in savings". Although most likely all those savings will be from a fairly small group of people. Only fairly well off people will be able to save £20k pa.

And yes, I agree, there Is every possibility of a future leftie govt targeting future "ISA millionaires". But to be fair, the ISA rules have been far more consistent than pensions, certainly over my lifetime. So all we can do is make the most of the rules as they stand. It would be fairly difficult to target historic capital gains in ISAs, as there is currently no requirement to keep records of acquisition prices (or even dates)

Gryff

[swill453]

It seems to me that the ISAs are not protected in the same way as a pension. Now, I'm not one for conspiracy theories, but If I were a forward thinking Jeremy Corbyn sort of person, it seems a great way to get as many people as possible to build up nice pots ready for retirement, then suddenly announce that income from ISAs will count in means testing or be taxable or....etc.

Well ISAs do count in means testing, and always have done.

Whether they make them subject to CGT in the future? Well no guarantees, but I doubt any party that wants to be reelected would try it.

And Income Tax on dividends and interest? Well that's been reduced on investments outside an ISA anyway, so there are easier targets.

Scott.

[stevensfo]

Well ISAs do count in means testing, and always have done.

Yes, of course. Sorry, I was confusing with pensions.... i think.


Steve

[PinkDalek]

My italics:

...

And Income Tax on dividends and interest? Well that's been reduced on investments outside an ISA anyway, so there are easier targets.

Scott.

Reduced for many but certainly not all.

[melonfool]

Hi - acting as Moderator

I have moved this to The Economy board as it seemed a better place, it's not a question that can have a factual answer so is more than likely going to be a source of speculation, which is fine in the right place.

I'm not sure this is 100% the right place, I did also consider Polite Discussions.

I am moderator on DAK but not on this board so, once moved, I could not post a mod note, hence this 'reply'.

Mel

[PinkDalek]

It seems like yesterday that ISA allowances were quite low, went up to about 10000 pounds, then 15000, and now to be increased to 20K.

But why? Has anyone any thoughts on why the limits have gone up so much? I'm certainly not complaining. I treat my ssISA contributions as a very important and necessary supplement to my pension. ...

The Budget 2016 Policy Paper included:

"give the next generation choice and flexibility in their savings, by increasing the ISA limit to £20,000 and launching a new flexible Lifetime ISA for under 40s in which people can save up to £4,000 each year and receive an additional 25% bonus from government. Savings, including the government bonus, can be accessed to buy a first home and in retirement" and "To further help savers at a time of unprecedentedly low interest rates, the ISA allowance will rise from £15,240 to £20,000 in April 2017."

https://www.gov.uk/government/publicati ... udget-2016

[saechunu]

Osborne introduced a whole bunch of initiatives aimed at encouraging people to build up their own financial resources so they are less dependent on the state.

The increased ISA limit was one of them.

[TedSwippet]

Could it just be a further aligning of personal pensions and ISA's? One day, I suppose, there will be only one.

My read is that it is a nudge away from pensions and towards ISAs. Over the past half-dozen years or so, the annual ISA allowance has risen from around £7.5k to £20k, but the annual pension allowance has dropped from £225k to £40k (and just £10k for some), and the pension lifetime allowance has halved in real terms.

It is not a coincidence that ISAs are taxed earlier than pensions. The effect is one of pulling tax revenue forwards from the future to today. Tomorrow's inevitable tax and spend squeeze will of course not be this government's problem.

TL;DR -- just more kicking the can down the road.

[Dod1010]

But of course just because I fill my ISA allowance each year does not necessarily an increase in my savings. In fact all I have been doing for the last few years is transferring certificated holdings into my ISA and will do the same again in April. Stupid not to since I will save on the new dividend tax and transfer a holding into a tax free environment.

Dod

[Lootman]

It seems to me that the ISAs are not protected in the same way as a pension.

I see it differently. The big problem with pensions is that until you reach the age when you can start withdrawing, the money is effectively locked away. As such, it is a hostage to fortune - a government can change the rules for that captive money, and in fact successive governments constantly meddle with pension rules because they can. They just can't resist.

But with an ISA, for instance, I can withdraw the money in a day (well, probably more like a week or so) and then do something else with it. That might be important if we wake up one morning and find that we have a confiscatory government. Or if a big opportunity comes along, or a big disaster, or I decide to emigrate, and so on.

So to me, I feel that ISAs are much more "protected" in the sense in which I feel that I want and need protection - which is total control of the assets at all times.

[Lootman]

My read is that it is a nudge away from pensions and towards ISAs. Over the past half-dozen years or so, the annual ISA allowance has risen from around £7.5k to £20k, but the annual pension allowance has dropped from £225k to £40k (and just £10k for some), and the pension lifetime allowance has halved in real terms.

It is not a coincidence that ISAs are taxed earlier than pensions. The effect is one of pulling tax revenue forwards from the future to today. Tomorrow's inevitable tax and spend squeeze will of course not be this government's problem.

Yes, I agree totally. It's also a nudge towards the US system of retirement saving, where the saver is given the choice of a tax benefit upfront or a tax benefit later. In the US that's a choice between an IRA and a Roth-IRA. In the UK, that's a choice between a SIPP and an ISA.

That said, I don't think the aim is to eventually do away with pensions in the UK. But rather to give people a choice of how to save, and when and how they want to pay tax.

But given how much governments love to mess with the rules for ISAs and pensions, there is never any absolute certainty in the plans we make.

[melonfool]

[quote="Lootman" It's also a nudge towards the US system of retirement saving, where the saver is given the choice of a tax benefit upfront or a tax benefit later. In the US that's a choice between an IRA and a Roth-IRA. In the UK, that's a choice between a SIPP and an ISA.

[/quote]

A *pension* or an ISA, not necessarily a SIPP.

Mel

[Lootman]

It's also a nudge towards the US system of retirement saving, where the saver is given the choice of a tax benefit upfront or a tax benefit later. In the US that's a choice between an IRA and a Roth-IRA. In the UK, that's a choice between a SIPP and an ISA.

A *pension* or an ISA, not necessarily a SIPP.

Fair point. At the time I was thinking only of individual plans rather than occupational and institutional plans.

[melonfool]

It's also a nudge towards the US system of retirement saving, where the saver is given the choice of a tax benefit upfront or a tax benefit later. In the US that's a choice between an IRA and a Roth-IRA. In the UK, that's a choice between a SIPP and an ISA.

A *pension* or an ISA, not necessarily a SIPP.

Fair point. At the time I was thinking only of individual plans rather than occupational and institutional plans.

You can have an individual plan that is not a SIPP, nor occupational, nor institutional (not entirely sure what you mean by this last one though).

A stakeholder, for example (which can be opened at birth). Or an ex employer plan you are allowed to still pay into.

Mel

[77ss]

Now, I'm not one for conspiracy theories, but If I were a forward thinking Jeremy Corbyn sort of person, it seems a great way to get as many people as possible to build up nice pots ready for retirement, then suddenly announce that income from ISAs will count in means testing or be taxable or....etc.

Can we all sleep safely at nights secure in the knowledge that our ISAs are untouchable, or should we sell everything and invest in Mexican ladder making and tunnel digging companies?

Steve

I think you are targeting the wrong party, viewing a conspiracy where there is none. 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?

As for sleeping safely at nights - grow up. Any government, of any persuasion, will rob us blind at the drop of a hat.

[mc2fool]

Tory govt - protecting the priveledged rich

The first big jump, from £7.2K to £10.2K (42%) was by Alistair Darling. He also set in place that the limits would rise annually with inflation (they didn't before).

[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. But it's main use is to enable older people to gradually migrate their portfolios to a tax shelter, via annual "Bed and ISA" transactions. I suspect a good percentage of people subscribing the maximum are in that category.

And if that removes large numbers of people from the need to submit self-assessment tax returns, then perhaps the government benefits because HMRC can focus on other taxpayers. And because such induced saving prudence potentially reduces the future demand for state pensions and benefits.

Or, as mentioned elsewhere, HMRC would prefer people save without giving them a discount on their current year's income tax, as happens with pension contributions.

[XFool]

And Income Tax on dividends and interest? Well that's been reduced on investments outside an ISA anyway, so there are easier targets.

That's up for debate!

[mc2fool]

And Income Tax on dividends and interest? Well that's been reduced on investments outside an ISA anyway, so there are easier targets.

That's up for debate!

Indeed. There's only a narrow band of folks the "new" dividend tax system benefits (HRTs with less than £21,667 of dividends). Everyone else is either same as before (no income tax) or worse off.