14th October 2013
Investors have another reason to be a little worried this week with reports in the Telegraph that the Government is considering restricting the maximum amount you can save in an Isa to perhaps £100,000 in a lifetime.
The story suggests that the Treasury officials have canvassed the possibility with some executives in the financial services industry. The annual limit is currently set at £11,520, but the government according to the Telegraph, is concerned about talk of Isa millionaires.
The move could create an Isa lifetime limit which might sit alongside the pension limit due to be capped at £1.25m from next April.
It is clear that some people have gathered a significant amount of money under an Isa cap but as the newspaper points out, the number who have gathered anything like £1,000,000 is very small indeed according to brokers.
There is also talk of moves to reduce the amount investors can take as a lump free sum on their pension. The Treasury has played down the reports of both stories.
The move would have many savers up in arms with many millions having taken out cash and stocks and shares versions of the Isa plans.
Mindful view in brief by John Lappin
Investors and savers may have some reason to worry. A lifetime cap does seem like a clumsy way to approach a reform of the Isa, and it feels as if there is less justification for any such imposition even that restricting pension tax relief. Yet stories of this nature are very unlikely to be completely without foundation. But such glimpses into the thinking in Government tend to take two forms. First officials may be exploring ideas to change the system in these cash strapped times. Or the Government may be running the idea ‘up a flagpole’ to test the reaction. It doesn’t feel like the latter but the former. So it is likely that the Government has also been encouraged by the idea of Isa millionaires to consider this proposal among many. These people do of course exist. They may have decided to put close to the maximise away every year, so may well be better off but they may be disciplined savers and investors, and nothing like the proverbial ‘fat cats’.
They may also be pension refuseniks who don’t like the lack of flexibility with pension savings in terms of how they take an income. They are potentially saving a considerable amount of capital gains tax at this level. But their numbers are tiny. It is very, very unlikely that the Isa limit would be brought down lower on existing money anyway, so the threat is to future saving. We think the most likely outcome of any policy change would be to bring down the amount you can save on an annual basis. But it would run contrary to policies to encourage saving and investing and could even cut the amount of cash available to British firms. That doesn’t sound like the right policy direction. But it may wise to use as much of your tax reliefs on Isas and pensions as you can, just in case.