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&#39Tax-free Isa dividends set to stay&#39

The 10 per cent tax credit on dividends within Isas will continue despite the Government&#39s current policy of scrapping them on April 6, 2004, according to senior industry sources.

They say that in private conversations with Inland Revenue senior policymakers they have been assured that the tax incentives on Isas will be maintained despite stated Treasury policy that the benefits will be phased out.

The news comes despite others in the industry claiming that their impression is the opposite and that the tax advantages will disappear as planned, leaving the industry to wonder what will happen in 18 months time.

It is also believed that the Revenue will scrap the difference between mini and maxi Isas, a move that would be welcomed by product providers which claim the two tiers only serve to confuse investors.

Experts say the removal of the credit would particularly put off lower-rate taxpayers and those using Isas for retirement.

One of the sources says: “While indications are not entirely clear at this stage, our belief is that the Revenue is willing to listen to the industry on this matter for the first time.”

Best Advice partner Paul Banfield says: “I am not surprised at all, as to abolish the tax credit in the current environment would have been another nail in the coffin of the savings industry.”

An Inland Revenue spokesman refused to comment on the matter.

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