To wonder what the point of trying to save is?

[CircusofPuffins]

Lots of reports today that Rachel Reeves is, as been rumoured for quite a while, due to announce plans to limit the amount that we can save in cash ISAs

https://www.ft.com/content/01371783-0399-412b-82be-c87f3a60ff8c

As someone who has the majority of my life savings in ISAs, I find this really objectionable. Apparently, this has lobbied for by people in the city, wanting more of us to invest in stocks and shares ISAs instead. Despite them ignoring the simple fact that most people won't understand stocks and shares ISAs, or have the necessary time/effort to get clued up on it.

I can't help but feel quite despondent about this, and wonder what really is the point of even bothering to save these days? The last few years I've been trying to be as careful as possible with money, limiting spending on luxuries and putting a decent chunk of my paycheque aside each month to hopefully, one day, be able to buy a house.

But now it seems like labour are targeting savers? And what really is the point of this massive house-building programme they supposedly want to accomplish if the vast majority of us will probably never be able to save enough to buy one in the first place?

What a depressing country this is increasingly becoming to live in...

It's not going to impact existing savings. As someone who does save £20k a year into ISAs, this really doesn't bother me.

I really hope they don’t put a maximum lifetime value on it.

I’ve just reached the point where I can start really utilising the allowance, and it’s basically my long-term investment plan.

It would be unsurprising however - it’s a running joke along my millennial friends that every time we get close to being able to utilise any of these tax efficient policies they’re closed down / we hit the income threshold to be excluded from any new benefits.

I agree with you Op. I save into cash ISA's only. I lost a lot of money on the stock market once and I don't want a S&S ISA!! I like that my money is safe in a cash ISA. I do save more than £10k p/a into mine, so I'm cross about this too.

The Lifetime ISA is still available, hope you’re aware of this? The government match 25% of what you save each year, up to £1k. This doesn’t look like a kick in the teeth to me.

https://www.gov.uk/lifetime-isa

I've saved an amount to cushion me in the event of a crisis (£30k).
I simply can't be bothered to save any more.
We're a couple without kids, with a lot of housing equity, no other debts, and can sell up and downsize in future if we like. I've paid into a private pension for 20 years.
I truly believe if you save too much, the government will find a way to take it off of you. Stupid perhaps....

My personal view is that it's been 20k for too long without being increased. They should increase the ISA allowance. Also, in line with other countries, they should abolish inheritance tax.

Some of us save and invest because we have little or no family to be able to rely on when we get older. So we have to be prepared to look after ourselves - which may, incidentally, ensure that we're less of a burden on the NHS, care services etc. as a result. This can often mean forgoing many of the things that other people consider to be essential. If someone came on here slagging people off for spending their money on make up, tattoos, takeaways, cosmetic enhancements and nights out, people would be up in arms about their right to use their own money as they see fit. Why are savers not entitled to the same courtesy?

No- you are not taxed on the gains in an ISA. That is literally the point of an ISA vs a regular savings account.

No you haven’t. You haven’t earned the interest yet, and if it’s in an ISA it won’t be taxed when you do earn the interest. No one is taxing your initially invested/saved capital (ie your savings) while you’re still alive.

They want people to save for their future but they want to offer no incentive to do so …..

stocks and shares are risky and suport a crap economic system

I’m also wondering this - my S&S ISA is up 37% in 3 years, even after the damage that Donald Trump caused (which it has almost recovered from).

apparently LISA's are a problem because if you change life plan and want to remove the money before you buy a house or a pension, you are hit by a 25% tax. not saying no one should do it but the price for potentially getting some government money can be quite a high one.

I agree, my reply was to a post that was referring to tax on savings in general. It wasn't a reference to ISAs

When ISAs were first introduced the cash allowance was £3000. The idea was to give normal people an incentive to save.

If you can afford to put £20,000 in an ISA every year you don’t need help because you’re already doing pretty well actually. That’s over £1600 per month going into savings. I’m sorry but it’s ridiculous for that to be tax free. Its just another way for the rich to hoard their money - the conservatives increased the allowance to this amount surprise surprise.

It should be reduced back to around £6000 imo. That’s still £500 per month. That’s something for normal hard working families to aspire to. We work full time in decent jobs and can’t afford to save £500 a month. So yes it should be reduced and people should pay more tax on the interest if they can afford to save like this.

Great post, I agree entirely.

This logic that nobody should be allowed to try and build a nest egg/safety net/whatever you want to call it, purely from working hard and being careful, while there are people unable to do that is deeply flawed. I'd argue it's a sign of the deeper cultural problems this country has in regards to financial aspiration, but maybe that's a topic for another thread.

So let’s say they cut the limit to £10k in a cash ISA. That means that as a couple you can save £20k less a year into a cash ISA.

Assuming you can secure an interest rate of 4%, and you’re both higher rate tax payers - then you can save £25k between you before you pay tax on interest. Assuming you save regularly across the year, that’s just over a year before you have to pay any tax on interest on money you would have otherwise saved in a cash ISA.
After that, you now have a tax cost of £80 each per year (increasing by that amount each year) that you wouldn’t have had if the ISA limit had stayed at £20k.

So if it takes you 5 years to save a deposit, this whole thing has cost you less than £1,000 each in tax. If you’re a basic rate tax payer, it’s cost you less than £500 in tax across the five years.

I get it’s not ideal, but less than £1,000 across 5 years is not going to make the difference on how quickly you can buy.

And that’s with some generous assumptions that you can save £20k a year at 4%.

(With a caveat I’ve worked this out quickly while on a train with no paper, so I can’t guarantee no mistakes!)

EDIT: I think it might actually cost £1,120 each in tax over 5 years for an higher rate taxpayer, not the originally quoted £1k.

Your savings are safe. What may change is how much interest you can earn on them before you pay tax on the interest only.

If you hold them in cash inflation will erode them slightly worse than before because your effective interest rate will be lower due to the tax on the interest.

After a certain amount of saving in cash for emergencies, the advice is generally to save in some form of investment because that will give a better rate of return over the years. Yes, with some risk, but inflation eroding cash is a risk. And you can pick lower risk investments. In a S&S ISA to be able to not pay tax on the returns.

And if you were in a position where you were able to save £20k, would you be saying the same thing?

The explanation of why it's a non-story is useful to help people understand! Otherwise some people will think that they are losing something they aren't.

If you now have an income that exceeds the tax threshold of course you will pay tax.
How are your savings not safe?

I agree. The exemptions are far too high and benefit only the rich who are shovelling their £20k into ISAs every year. A limit of £6k p.a. is exactly the kind of level it needs to be where it will benefit huge numbers of "ordinary" people. The people with huge savings can easily afford to pay tax on the interest and should do so!

If I had an income high enough that I could save £20k per year, it puts me amongst the richest few percent of the population and I SHOULD be paying tax on the interest generated from such a high level of savings!

The change is to hit people like DH and i, who have a big income and save loads, and have been able to build up 6 figure pots which generate untaxed returns.

I am ok with this! People like us can afford to pay our share of tax.

This is disingenuous, you are not hit by a 25% tax, you are expected to give back the contribution which to government gave you in order to help you save for a house or retirement. I don’t like the way it’s structured such that you loose any gain but you can’t expect to keep it all when you changed your mind over what you are saving for. This would leave it open to abuse and being used for things other than those which it intended to encourage.

This is not the intention. If you can afford to save this much then the government is trying to encourage you to invest the money rather than just save it. I agree you could afford to pay the tax but that is not what this change would be aiming for.