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Treasury floats £100k Isa cap and cuts to pension tax-free cash

The Treasury has consulted with financial services firms over the impact of imposing a £100,000 cap on the amount savers can hold in Isas and is said to be looking at reducing the amount of pension tax-free cash.

The Sunday Telegraph reports that officials have explored the impact of a cap on Isas, with one suggested cap being as low as £100,000, in order to address concerns about the growing number of “Isa millionaires”.

The current annual Isa limit is £11,520 for 2013/14, half of which can be held in cash and half in investments.

The newspaper reports that while Isa millionaires represent a very small proportion of the total number of Isa savers, it suggests the proportion of those with £100,000 or more in Isas equates to around 2 per cent of investment Isa savers.

The Treasury is also said to have gauged opinion on reducing the amount that can be taken from a pension pot at age 55. Options discussed include reducing the tax-free lump sum from 25 per cent to 20 per cent, while another suggestion is to cap the total amount that can be withdrawn at age 55.

A Treasury spokesman told the paper: “As you would expect, there will be plenty of discussions going on about pensions tax relief, but reducing the lump sum is not within the thinking on those conversations.

“Over the course of the summer, the Treasury did go out in listening mode but officials weren’t putting proposals forward.”

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Comments

There are 15 comments at the moment, we would love to hear your opinion too.

  1. I can’t honestly believe that only 2% of the population has over £100K in ISAs. I have religously recommended moving investments into an ISA wrapper year-on-year, so I would estimate around 50% + of my clients have this amount held (or more). If someone started saving into an ISA 20 years ago they could have easily saved/seen their investments grow to £100K plus. Yet another penalty for saving in a tax efficient manner and the Treasury changing the goal posts.

  2. I appreciate that this is a kite flying exercise, but seriously? Either, they want to cause every financial adviser in the country to suffer an aneurism or they truly do not want to incentivise long term saving. or have I missed something?

  3. This just helps to highlight that the bigger problem lies with the fact that the current political system is not ‘fit for purpose’. We all have to suffer at the hands of self-serving politicians and their short-term populist policies that have lead the country to the brink of ruin. Whose money is it anyway?

  4. Read my lips, all political parties, this is an unelectable policy.

  5. Incandescent doesn’t even begin to describe my reaction to this. I get the Sunday Telegraph and this entirely spoilt my Sunday.

    I would say that well over 75% of my clients have comfortably over this amount. (My wife and I too have considerable sums in ISAs so I have double reasons to feel aggrieved!).

    Many have been assiduously saving in ISAS since Nigel Lawson thought them up. They have been putting in the maximum year after year and then adding single company ISAs and then the TESSA (which became TOISA).

    These people aren’t millionaires (although they might aspire as such!). They are ordinary hardworking middle class people that want to look after their own financial futures. They have also contributed to pensions.

    I must ask in all seriousness – do we have communists in the Treasury? No doubt Labour will jump on this idea with glee. Those who have followed some of my ranting over the years will know that I mooted this as a concern ages ago.

    It is quite evident that our Governments (all of them) have no concept of steady policy, honour or honesty. They have already raided pensions. Now they wish to once more and now pull the rug under ISAs.

    On the other hand they are dragging the unwilling and unable to contribute to pensions under AE, because they want to continue the pretence of low tax rates and are totally incapable of running decent State Pensions. Indeed all of the Governments we have had since the Blessed Maggie have been totally unable to arrange a party in a brewery.

    On the one hand the numpties in Westminster bleat that we are not saving enough and when those who sacrifice nights in the pub, bets on the horses and packets of fags, decide to take them at their word the message seems to be – Yes please save, but only a little bit. We want those people to save who haven’t got money and those that work hard have climbed the greasy pole – no we don’t want you to save at all.

    If our leaders carry on like this they will have more to worry about that Jihadist Terrorists – we will have a full scale revolution – or people with a few bob will start emigrating en masse – leaving these Islands to be populated entirely by those on benefits – funded by whom or what?
    And they wonder why odd parties like UKIP are prospering.

  6. “If it isn’t broken don’t fix it”. Let’s not forget that ISA savings have come out of taxed income in the first place. If there is to be a limit it should be more like £250,000. It is also absurd to even consider reducing the amount one can take as a tax-free lump sum from pensions again. Do not forget the fore-runner to personal pensions, i.e. the S226 pension policies where one could take up to 3 x the residual pension income which could result in 30-35% tax-free cash. The recent reduction in the lifetime allowance is bad enough, please do not further disincentivise people from saving for their retirement. The constant scrabble by politicians to steal more of the people’s income and savings through tax is appalling.

  7. It works like this: £100,000 ceiling is introduced. Customers with more than £100,000 complain they were badly advised. FOS rules against advisers. Advisers have to offer redress…

  8. Next stop – the bastards will withdraw the 5% rule on bonds.

    We will then all emulate our politicians. We will fiddle our expenses and the Black Economy will expand out of all proportion.

    Pity we can’t rely on the sort of pensions available to our MPs. Democracy in the UK? Who are they kidding well over half the population abstain. This will now increase. We will end up with 20% voting and only 16% or so deciding on which inept Government is going to be in power.

    Aux barricades!

  9. Wait for the proposal. If they say that people who have already contributed £100k to ISAs may not contribute any more, that will be one thing. If they say that the proceeds of contributions in excess of £100k will be taxable, that is retrospective and truly nasty. It will a be a total nightmare to administer, even if it is theoretically possible.

    I assume it is the LibDem influence behind these daft kites. Their leader equates the notion of limiting child benefit for the fourth and subsequent child with China’s one child plus forced abortion policy. Nuff said.

  10. Let’s wait for a policy, not react to the kite. If they put a limit on what can be contributed, no-one can complain. If they try to get back the tax from those of us who have put in more than the limit, there will be a revolution. Taxing retrospectively is truly scary. I can’t see the Tories committing suicide on this one.

  11. OK Graeme

    Taking your points. Then:

    1. What incentives will people have to save?
    2. The Government keeps bleating about wanting people to save – do they or don’t they? Or is it as I said. “Please save only a little”
    3. If someone has over £100k in ISAs how will they know? It isn’t on a tax return. They could only find out if it is all in one place within a platform or Stockbroker. If it’s all in separate individual ISAS they will have a job on their hands.
    4. If they do manage to impose limits then what will happen if people withdraw any excess and put the money into Investment Bonds and then use that to draw down up to the 5%? Presumably they’ll then stop that too.
    5. How will the industry (fund managers, the various bodies, advisers etc.) react seeing their business disadvantaged yet again? Indeed will it affect the market?
    6. Don’t forget that for married couples the limit is effectively £200k anyway. At current levels £100k can be reached (with no investment growth) in less than 9 years.
    7. Of course people can complain if they put a contribution limit – people plan and this really mucks up planning.

    These started in 1987 – so they have been going 26 Years. Over that time (with no growth) an individual could have contributed £221,280 in PEPs TESSAs and ISAs. With growth £350k is not out of sight. So I hope you are right when you say that there’s no retrospection. But I wonder if they will just take way the tax free elements. Either/or/and the CGT or the tax free income.
    Personally I put nothing beyond this venal bunch. They make the Kray Twins look honest.

  12. Applying the Keydata logic to this: Any adviser that has advised clients to hold more than £100,000 in ISAs should have known that the government would reduce the limit to £100,000. If customers were not warned in the Suitability Report that the government could reduce the limit to £100,000 then advisers are liable to replace any losses incurred by investors.

  13. While we are talking about regulatory vandalism any views on the EEA restructuring proposals?

  14. Once again, one is reminded of the Conservative party’s thoroughly reneged-on pre-election manifesto promise to sort out the offputting mess of the pensions framework brought about by 25 years of prejudicial government meddling. What about addressing the annuity rates trap at retirement or the punitive 55% death tax on unspent funds post-retirement? All we hear about instead, from our glove puppet pensions minister, are AE workplace retirement savings schemes.

    They also said their intention was to “reignite the UK’s savings culture”. On pensions, they’ve done the exact opposite, whilst these latest proposals for ISA’s will do the same to the UK’s savings culture.

    These people are so out of touch with reality and so untrue to their promises that it’s frightening.

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