“Use it or lose it” could be sage advice for anyone with an ISA as we lead up to Labour’s first budget since 2009.
Labour has left itself with limited options to fill the £22 billion black hole Rachel Reeves has claimed was left in the public finances by the Conservative government. In their pre-election manifesto, Labour pledged not to raise income tax, national insurance or VAT (which amount to 63% of the total tax take), which has left many wondering what that means for capital gains tax, inheritance tax, council tax, pensions, and ISAs in the upcoming budget.
Senior government figures have repeatedly stated that taxes will not be raised on working people and that those with “the broadest shoulders should bear the heavier burden”. With £750 billion in total held in ISAs in the UK producing an estimated annual cost to the treasury of £7 billion, there is increasing speculation this tax give away is difficult to justify in the current environment.
Only 1 in 7 UK adults manage to utilise the full £20,000 ISA allowance, but some of those that do have built up 7 figure sums utilising the power of compound investing. Labour could well argue that those who do manage to put away the full £20,000 each year into their ISAs should bear more of the burden of the tax rises required.
It has been reported that Labour have already decided to scrap the planned ‘British ISA’ which would have given investors a further £5,000 allowance to invest in UK assets and further changes to the ISA opportunities are expected.
The headline £20,000 annual allowance may not be amended, as reducing it could penalise those who come into money unexpectedly through redundancy or bereavement, but a cap on the total saved in ISAs would be an easier argument to make.
A lifetime cap of £100,000 has been proposed by left leaning independent think tank the Resolution Foundation on the basis it would only impact a small number of wealthy people but raise £1.1 billion annually in additional tax revenues. The report estimates that 1.5 million people in the UK live in families with £100,000 or more saved in ISAs per adult while 750,000 families have no savings at all.
Without any clear signals from the Treasury, it is difficult to predict exactly what changes to the tax regime may come in the budget next month. However it may make sense for investors to utilise as much of their current year ISA allowance as they can before budget day (30 October) or any other allowances they can utilise, as for some, it could be the last opportunity they get.
ISAs at Assetz Exchange are flexible, meaning any money deposited can be withdrawn and if it is put back into the same account in the same tax year your allowance will not be affected. Sign up to Assetz Exchange today and open an ISA to enjoy the benefits.