As someone who prefers not to risk his money (read: doesn't know much about the financial world!), I try to save £3000 per year in a cash ISA.
I've read a lot recently about how the Government plans to reduce this £3000 limit to £1000 in 2006 but have never seen an explanation as to why.
Only reason I can think of is that the thieving b******s are trying to screw more money out of us by making us put our money in regular (taxed) savings accounts.
Possibly... or you could say that every few years some govermental bright spark comes up with a new idea... like TESSA's, ISA's etc... "it's good for the consumer.. and it we get some good press" etc.. not being cynical of course!
Maybe there will be a replacement, I don't know... I hope so. Or maybe they'll increase the premium bond rate ;op
But given from what I understand, we have the highest levels of debt ever, interest rates are low, most falsely think they are rich because there house is worth x thousand... not an incentitive for the average person to save.
Therefore rather than reducing the limits, the goverment should actually be making saving more attractive, so people are encoraged to save to tide them over the bad times, and not to rely on the state or debt.
We are always being told that we should have 3-6 months salary put away for a rainy day.. getting 1k a year tax free is not an incentive... its the price of half a dozen pints of beer :o(
I think there has been quite a substantial shift in policy. In the early days spending was kept low and there was a lot of stuff in budgets to enourage saving. At the moment spending is going through the roof, and since GB is still pledged not to increase the income tax rates he has to look at anything else available, the tax breaks on ISAs being an obvious example. The big question is what happens when the whole ISA regime expires in 2009 (?), in principle they might even remove tax relief on existing ISAs although that would probably be too unpopular.
Since the Tories are apparently promising both lower taxes and higher spending I doubt they will be too keen on tax breaks either ...
I find it amazing though that the Government announce these changes but give no explanation; there must be some reasoning behind it, so why not tell us?
Come to think of it though, with GB maybe there is no reasoning :-)
When ISAs were originally brought out, there was supposed to be a maximum limit of £1000 for cash. The £3000 limit was a bonus for the first year only. This has been extended a few times, and it may well be that it isn't going to be extended again.
When ISAs were first set up in 1999 the cash subscription limit was due to be £3000 for the 1999/2000 tax year only and reduced to £1000 for
2000/2001. In March 2000 they changed this and pushed back the reduction to the 2001/2002 tax year. In 2001 they announced they would leave the £3000 annual investment limit until 2006/2007.
Cash ISAs were designed to encourage more people on lower incomes to save cash reserves, hence they are relatively simple and CAT standard ISAs have no withdrawal penalties (as opposed to the TESSAs that Cash ISAs replaced).
In March 2000 when the decision was first taken to delay the reduction in the subscription limit, the justification was that not enough people had taken advantage of the product. A similar arguement was used in 2001.
The theiving b*****ds are actually taking less tax than the Tories originally projected when they designed the product and the 3000.00 per tax year limit is actually an extension of the original extra allowance.
If you have fully subscribed to cash ISAs you could have £15000.00 sat earning about 4.5% tax free interest PA which would cost the government £135.00 this year. Under the original design the figure would be £63.00.
Just as an aside, anyone know of someone on a low income with £15000.00 sat in a savings account?
There are probably plenty but they don't shout about it. The ones who do shout usually don't have savings but have huge debts. The former of the above usually reside in Yorkshire, whilst the latter live in the rest of the country!
Indeed - and the tax credit for equity ISAs was also always a limited introductory offer.
If you look at it dispassionately the ISA tax break is not really encouraging saving among people who didn't already save (and most of the benefits are now focussed on high earners). However, rather than remove some of the tax breaks it would be better, IMO, to restructure the whole thing to make it more attractive to non-savers.
That's a good question, but possibly to match contributions that are held for a certain period (up to a ceiling). One of the problems is that they don't seem to pilot/research these schemes.
Wow, that quite a big benefit! Which dept would fund it? And how would you stop rich people dolling out wods of dosh to loads of underlings so as to double their investment?
Sorry, perhaps I didn't phrase that very well. I merely wanted to point out my suspicions that there are very few people who wil have actually saved up £15000.00 since ISAs began, ie I would suspect that those with £15000.00 in an ISA already had a bit of capital to start off with.
Well, such schemes have been mooted in relation to the children's bond thing. I don't necessarily see a large cost involved (less than, say, invading a Middle Eastern country every two or three years) unless the scheme is open to very wide ranges of income or the period was very short. You'd definitely need to put in provisions to prevent abuse - but essentially the same thing applies to tax relief on ISAs.
I dont think so, tax relief on ISAs is miniscule when compared with matching an amount saved. I.E. tax relief on a £1 in an isa @ 4% is less than a penny for a basic rate tax payer and the people who need to save dont pay tax anyway, whereas your scheme would cost the treasury £1, over 100 times more expensive. How would you stop the wealthy from cashing in?
There used to be a scheme called Save As You Earn which had maximum contributions of something like £20 a month, and if you paid regularly for 5 years you got a relatively high return. It was phased out in the mid-90s - at about the same time as National Savings became a lot less competitive except for higher-rate tax payers.
A tiny amount for whom? For the kind of people who currently don't save at all I would think that even a limit of a few hundred pounds would not count as tiny. OTOH richer people wouldn't bother, it would just be too small to be worth the trouble.
Depends on the period. If the government matched the capital held for say 5 years that would be a lot less than matching capital held for 5 days.
Lots of possible ways - as I noted before I think it should be researched piloted (and I'm not necessarily sold on the "matching" idea). The key point is to find inducements to save that work.
I actually held one to maturity - the full seven years - 20 ppm. Very useful it was (given that when I started I hadn't much cash and had only just started my first permanent job).
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