ISAs have been one of the most successful parts of the government’s strategy to encourage saving for several decades now so, of course, it is a perfect time to destroy them (sarcasm intended).
Of course, it isn’t a good time to destroy or even undermine ISAs, as some reports are suggesting. It's a terrible time to cut back on their benefits.
For millions, ISAs has spurred huge levels of saving into stocks and shares ISAs (and cash ISAs). This is good for UK plc and has built a generation of savers who have squirrelled money away for a better tomorrow, whether that be for their retirement or to save up for a holiday.
Without ISAs it's very unlikely millions would have saved, or saved so much.
So what’s the problem? The problem really is the government finances and the Treasury's hunger to suck out ever more tax from every element of people’s savings and retirement plans.
Of course, a lot of people hold cash in stocks and shares, usually for very good reasons. They might be adding cash to invest steadily over a period of time (a sensible approach), setting up their ISA for the first time or they may be withdrawing cash to use elsewhere and are temporarily holding funds in cash.
There are all sorts of reasons to keep cash and the cash is, at present, tax free but that's under threat.
If the reports are correct the Treasury wants to tax this cash at 22%.
The move would change ISAs overnight. For example, an ISA stocks and shares investor holding £50,000 in cash as part of a wider holding of investments could face a tax bill of £11,000 per annum based on a 22% tax rate.
While the Telegraph reported very recently the Treasury may be having second thoughts because the Telegraph has identified a potential loophole there is clearly a risk long term of the Treasury trying to nudge more of our savings out of tax free status so it can be taxed for extra revenue.
I should point out here that the Treasury has not confirmed it wants to tax ISA cash holdings although it has already moved to reduce the Cash ISA from £20,000 to £12,000 for under-65s from next April.
Underlying all this, is a creeping strategy for the Treasury to increase taxes on saving and investing generally, for example as it has done with recent CGT changes. The decision to freeze income tax thresholds until 2031 is a good example of an excessive attempt to take more tax from people.
There are currently around 15m ISA accounts held by UK taxpayers and HMRC figures show that around £103 billion was invested in Adult ISAs in 2023 to 2024, an increase of £31.4 billion compared to 2022 to 2023.
ISAs are popular and simple. Make them far more complicated and add on additional taxes and many taxpayers may turn away from them. If the government does this it will have killed a golden goose.
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Kevin O’Donnell is editor of Financial Planning Today and a journalist with 40 years of experience in finance, business and mainstream news. This topical comment on the Financial Planning news appears most weeks, usually on Fridays but occasionally other days. Email:
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