The Government should extend the £7,200 capital gains tax exemption to all savings products because Isas have failed to extend saving, says Ernst & Young.
The move would encourage more people to save than the overly complex Isa regime, E&Y argues in its pre-Budget submission. But it would still ensure that higher earners pay their share of tax.
The report, The Next Term: Tax Reform Proposals for the First Parliament of the 21st Century, says Isas only serve as a tax shelter for wealthy people rather than encouraging the majority of people to save.
The report says: “Recognising that the state actually receives very little in the way of tax from individuals with modest savings and investments leads to the question as to why the state bothers to tax these amounts. The need for Isas would be reduced. These, with mini and maxi Isas and the hangover from Peps and Tessas, are complicated and tend to encourage individuals to move savings into tax-effective environments rather than to encourage the majority of the population to save.”
Autif director of communications Anne McMeehan says: “I suspect that, although it is a clever proposition, it would be difficult to market as a concept. I do not know if the abolition of Isas would appeal to the Chancellor because they are only in their second year and are successful. At the very least they are attracting people into cash savings.”