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ISAs - should they be scrapped?

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chas49
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ISAs - should they be scrapped?

#350674

Postby chas49 » October 26th, 2020, 10:12 am

Inspired by the discussion about Ratesetter etc elsewhere on this board, I started to write a reply about cash ISAs as follows:

They could remove the ISA shelter at any point as well though. For the vast majority of savers (although possibly not readers of this board), that would probably make no difference to the tax they pay.

According to https://www.finder.com/uk/saving-statistics, the average UK adult has £6757 in savings, and the average in Adult ISAs is £6049. It's not explicit on that site, but I assume that the ISA figure is included in the total savings.

At current rates, for basic rate taxpayers you need to have around £100K in taxable savings to use up the personal savings allowance. I haven't found a graph showing the propoertions of people with savings over that level but I suspect the numbers are relatively small in compariosn to all the people below that level. It might not be that politically unpopular to scrap ISAs and increase the personal savings allowance by say another £1000. Most people wouldn't lose out, and the Treasury would presumably gain a bit of tax from the minority, and the bureaucracy of ISAs could be scrapped.



I was going off-topic there, so I've started a new thread here instead. What do you think - could/should ISAs be scrapped and the PSA increased? How likely is that to happen?

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Re: ISAs - should they be scrapped?

#350681

Postby JohnB » October 26th, 2020, 10:32 am

Very dangerous to say "at current interest rates a small increase to the PSA will allow ISAs to be scrapped". ISAs are a long term system, and work at different inflation and interest rate regimes, and it would be a blatant money grab to restrict them this way.

And ISAs aren't aimed at most people, as most people have no money. They are aimed at people who do have significant sums, and need to be wooed to save to benefit the economy and reduce future burdens on the state. Ditto pensions of course.

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Re: ISAs - should they be scrapped?

#350688

Postby Dod101 » October 26th, 2020, 10:37 am

Are we discussing cash ISAs only? If so, I would be neutral on seeing them scrapped but I do not expect it will happen anyway.

Dod

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Re: ISAs - should they be scrapped?

#350692

Postby Urbandreamer » October 26th, 2020, 10:42 am

I would not like to see them scrapped.

It would make significantly more work for me. Sure I could avoid tax, by selling some of my shares on a regular basis to crystlise any capital gains and losses. However the thought of the maths involved, when I have lost the purchase contract notes, makes me shudder.

Your math's is off though. You don't need that much in share capital to be subject to tax upon your dividends. Especially if you happen to be a higher rate tax payer. Dividends in excess of £500 are taxable for those people. That could easily be less then £20k of shares. Significantly less than the £100k you mentioned.

Could the government scrap ISA's? Of course they could. It likely wouldn't garner any more tax intake and could actually cost in terms of the paperwork. The point about ISA's is that there is very little paperwork, at least compared to CGT or indeed income that is not PAYE.

They would have to have an entirly different reason. Possibly along the lines that only those with the ability to save benefit from savings. Or that people should save less and spend more to benefit the econnomy.

Ps, averages are a rubish way to consider these things. If we were to talk pensions instead of ISA's, the government not too long ago past a law that VERY significantly reduced the size of the average pension pot. What was it? Auto-enrolment!
By increasing the number of new pension schemes with very little in them OF COURSE they reduced the average size.
With respect to average ISA, how many child trust funds that just have the governments £250 became JISA's and now ISA's? Wouldn't that effect the average?

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Re: ISAs - should they be scrapped?

#350693

Postby gryffron » October 26th, 2020, 10:43 am

Since the Tories have consistently increased ISA allowances, and saving/personal responsibility is one of their core ethics, I think it is very unlikely the Tories will attack/scrap ISAs. State admin costs of ISAs is pretty minimal, much simpler than Pensions, they only have to police cash paid in. They explicitly and deliberately reduce the tax reporting burden.

Labour government, different matter. After all, only fairly wealthy people can afford 20k/annum to savings. An ISA savings cap like the Pensions cap a possibility?

Gryff

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Re: ISAs - should they be scrapped?

#350697

Postby gryffron » October 26th, 2020, 10:51 am

Though as regards cash ISAs. If the providers are going to consistently offer rates significantly lower than non ISA rates (as is happening at the moment), then they'll effectively become redundant anyway.

Gryff

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Re: ISAs - should they be scrapped?

#350698

Postby dealtn » October 26th, 2020, 10:51 am

Urbandreamer wrote:I would not like to see them scrapped.

It would make significantly more work for me. Sure I could avoid tax, by selling some of my shares on a regular basis to crystlise any capital gains and losses. However the thought of the maths involved, when I have lost the purchase contract notes, makes me shudder.

Your math's is off though. You don't need that much in share capital to be subject to tax upon your dividends. Especially if you happen to be a higher rate tax payer. Dividends in excess of £500 are taxable for those people. That could easily be less then £20k of shares. Significantly less than the £100k you mentioned.

Could the government scrap ISA's? Of course they could. It likely wouldn't garner any more tax intake and could actually cost in terms of the paperwork. The point about ISA's is that there is very little paperwork, at least compared to CGT or indeed income that is not PAYE.

They would have to have an entirly different reason. Possibly along the lines that only those with the ability to save benefit from savings. Or that people should save less and spend more to benefit the econnomy.

Ps, averages are a rubish way to consider these things. If we were to talk pensions instead of ISA's, the government not too long ago past a law that VERY significantly reduced the size of the average pension pot. What was it? Auto-enrolment!
By increasing the number of new pension schemes with very little in them OF COURSE they reduced the average size.
With respect to average ISA, how many child trust funds that just have the governments £250 became JISA's and now ISA's? Wouldn't that effect the average?


The OP is talking about Cash ISAs, and savings, not stocks and shares ISAs and investments.

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Re: ISAs - should they be scrapped?

#350709

Postby Urbandreamer » October 26th, 2020, 11:16 am

dealtn wrote:The OP is talking about Cash ISAs, and savings, not stocks and shares ISAs and investments.


Apparently so. Yet their link doesn't draw that distinction. Indeed if you DO follow their link you will read.

whether in the form of a cash individual savings account (ISA) or a stocks and shares ISA?


I think that I can be forgiven for assuming that stocks and shares ISA's are included in the average quoted in their post.

I'll leave the rest of you to debate cash ISA's, though I would think that the government would need a good reason to enact any legislation. It does, after all, have quite a lot to do at the moment.

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Re: ISAs - should they be scrapped?

#350750

Postby AleisterCrowley » October 26th, 2020, 1:24 pm

The distinction between cash ISAs and others classes is blurred now. Not sure abolishing the cash ISA class would achieve much

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Re: ISAs - should they be scrapped?

#350765

Postby scrumpyjack » October 26th, 2020, 2:08 pm

The advantages of ISas for HMG are that it encourages people to save more, so fewer become entitled to means tested benefits, and as people like to hang on to ISAs rather than lose the tax benefits, they still have them when they die and so more IHT is paid.

Rather than scrap ISAs, it would be better to limit private residence relief so the state gets some share of house price appreciation.

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Re: ISAs - should they be scrapped?

#350768

Postby Lootman » October 26th, 2020, 2:21 pm

scrumpyjack wrote:The advantages of ISAs for HMG are that it encourages people to save more, so fewer become entitled to means tested benefits, and as people like to hang on to ISAs rather than lose the tax benefits, they still have them when they die and so more IHT is paid.

Yes, I think a lot of people make the mistake of retaining their ISA until death, when of course 40% of it goes in tax, probably exceeding the lifetime tax you would have paid on those investments outside of an ISA.

An ISA is best held until after retirement, but then should be gradually disinvested (tax free) so that IHT mitigation steps can be utilised.

Another reason the government like ISAs is that it keeps millions of small investors out of the business of having to declare their investment income and gains, which would be a lot of work for HMRC for not much reward.

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Re: ISAs - should they be scrapped?

#350779

Postby Urbandreamer » October 26th, 2020, 2:51 pm

chas49 wrote:I
They could remove the ISA shelter at any point as well though. For the vast majority of savers (although possibly not readers of this board), that would probably make no difference to the tax they pay.

According to https://www.finder.com/uk/saving-statistics, the average UK adult has £6757 in savings, and the average in Adult ISAs is £6049. It's not explicit on that site, but I assume that the ISA figure is included in the total savings.
....



Just for information, those numbers look wrong.
I can't find the number £6049 in the link, however I can at the government web site.
It's NOT the average in Adult ISAs when used there.
https://www.gov.uk/government/collectio ... statistics
"Individual Savings Account (ISA) Statistics, June 2020HM Revenue and Customs12Average Subscriptions (Table 9.4)Average subscriptions in 2018-19were £6,049, a 6% decrease on the 2017-18figures.

So, average Adult savings are slightly more than the average subscribed to all types of Adult ISA in a sigle year, that happens to be the most recent we have numbers for. The phrase apples and oranges comes to mind.

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Re: ISAs - should they be scrapped?

#350788

Postby Cornytiv34 » October 26th, 2020, 3:39 pm

I noticed no limitation on this page to cash ISAs. In which case I think that there is an additional aspect to consider. In my mid 80s and my wife nearly 80, I remember in detail things from many years ago but "occasionally" have problems with "some" more recent things, a developing trend!

I managed our investments within our ISAs for some years but decided this needed to end (as in addition to the above, Mrs CT abhors spreadsheets and financial matters) so I turned to ITs within the ISAs. This avoids much of the regular reviewing and dealing in individual shares, avoids having to fill in complex Tax Returns and, should I "fall off my perch", there will be no complex matters to untangle. My ISA can simply be transferred to Mrs CT in toto without any trouble. Having given prior instruction to our children she will not need to worry.

ISAs give great peace of mind!

Mike

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Re: ISAs - should they be scrapped?

#350792

Postby chas49 » October 26th, 2020, 4:18 pm

Urbandreamer wrote:
chas49 wrote:I
They could remove the ISA shelter at any point as well though. For the vast majority of savers (although possibly not readers of this board), that would probably make no difference to the tax they pay.

According to https://www.finder.com/uk/saving-statistics, the average UK adult has £6757 in savings, and the average in Adult ISAs is £6049. It's not explicit on that site, but I assume that the ISA figure is included in the total savings.
....



Just for information, those numbers look wrong.
I can't find the number £6049 in the link, however I can at the government web site.
It's NOT the average in Adult ISAs when used there.
https://www.gov.uk/government/collectio ... statistics
"Individual Savings Account (ISA) Statistics, June 2020HM Revenue and Customs12Average Subscriptions (Table 9.4)Average subscriptions in 2018-19were £6,049, a 6% decrease on the 2017-18figures.

So, average Adult savings are slightly more than the average subscribed to all types of Adult ISA in a sigle year, that happens to be the most recent we have numbers for. The phrase apples and oranges comes to mind.


Your points about apples and oranges is valid - the text in the key statistics in the article says "the average amount in Adult ISAs has fallen from £6,466 in 2017-2018 to £6,049 in 2018-2019." but it probably should say subscriptions.

The debate was really meant to be about whether ISAs could/should be scrapped etc - rather than the minutiae of the stats

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Re: ISAs - should they be scrapped?

#350795

Postby Urbandreamer » October 26th, 2020, 4:30 pm

chas49 wrote:The debate was really meant to be about whether ISAs could/should be scrapped etc - rather than the minutiae of the stats


Surely any debate must have reason on each side? What are the arguments to scrap ISA's?

If the stats are unimportant, which of course is a valid opinion, then what is the important argument to change things?

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Re: ISAs - should they be scrapped?

#350823

Postby chas49 » October 26th, 2020, 5:34 pm

Urbandreamer wrote:
chas49 wrote:The debate was really meant to be about whether ISAs could/should be scrapped etc - rather than the minutiae of the stats


Surely any debate must have reason on each side? What are the arguments to scrap ISA's?

If the stats are unimportant, which of course is a valid opinion, then what is the important argument to change things?


Of course debate must have propositions on each side. Howver, in a forum such as this it's also (IMHO) acceptable to pose a question without having to take a position? It seems to me that there could be some arguments for getting rid of ISAs. I don't necessarily think that's the right way to go - but wondered if anyone could put up good reasons eiher way.

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Re: ISAs - should they be scrapped?

#350846

Postby Urbandreamer » October 26th, 2020, 6:21 pm

chas49 wrote:It seems to me that there could be some arguments for getting rid of ISAs. I don't necessarily think that's the right way to go - but wondered if anyone could put up good reasons eiher way.


Sure. Of course there can be reasons / arguments made.

For example if we make saving unproductive then people will spend more. This will increase the speed of money, GDP, and increase the taxes received by the state. An argument can be made that savings only benefit those in a position to save.
Personally though, were I to place such an argument forward I would not argue for raising the personal allowance, which only benefits those in a position to pay tax, but argue for negative income tax rates or a minimum income provided by the state, as Milton Friedman did.

It's not an argument that I subscribe to, but could defend in a debating society. It is also quite weak, as there is no need to scrap cash ISA's. A similar increase in the flow of money could in theory be achieved by reducing interest rates to make saving unproductive. OOops, someone in government may have thought of that.

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Re: ISAs - should they be scrapped?

#350963

Postby Gerry557 » October 27th, 2020, 10:28 am

Could or Should?

Average stats are fairly meaningless. Some people have £1m ISA's others have zero.

Obviously tax rules can change anytime. They don't have to be cancelled. Limit input, 20k is fairly generous. Limit top amount, £250k etc. This has other complications, what if you get an extra quid in dividends!

I suppose it depends on the reasons why and politics. Easy to trot out millionaires escape tax whilst kids not at school go hungry headlines.

For the majority who do have ISA savings I suppose the admin burden is the biggest benefit rather than the tax saving, which on cash appears to be nothing much to write home about.

What would you gain/loose by doing so. Encouraging saving and less reliant on state or some short term tax saving and then more people who will like to collect from the state later. I know a couple who stopped saving in an ISA as the income from it would reduce some child tax benefit allowance.

It would change behaviour and if we stick it in pensions would it save the government anything.

It would be interesting to see the full optics of it all rather than just my tax saving and the perceived loss to the state.

But if you ask the question on ISA why not pension or allowance or everything come to think of it.

Also why not question everything the government spend. The aid budget is always served up first. Why not cut that to feed school kids instead of helping kids in India when they can afford space programs.


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