Treasury officials and financial services executives have consulted on future plans to put a cap on the amount that UK savers can have in tax-free ISA accounts.
Tax-free ISA savings plans were originally launched in 1999. Since then, they have become an essential component of retirement planning for millions of individuals throughout the UK. Approximately 15 million ISA accounts were opened in 2012 alone.
However, with increasing pressure to curb benefits for “wealthy” savers, the Treasury appears to be testing options that would limit the amount Britons can have in ISA accounts.
Treasury officials have explored various ISA limits and the impact they could have, and one official has suggested a £100,000 ISA cap.
When ISAs were first launched, Britons were allowed to stash away £7,000 per year. In 2009, a sizable increase was ordered, and further rises over the past few years have increased the annual limit to £11,520.
The maximum amount that individuals could have deposited into their ISAs would be approximately £130,000. However, with wise investments and the beauty of compounding interest, some have managed to accumulate up to £1 million or more.
As of now, it is not clear how the Treasury could implement a cap on ISAs, and the Treasury is insisting that there are no plans for any type of limit. However, statements regarding officials posing the idea of ISA caps provide insight into the discussions occurring in Whitehall.
The government has already set plans in motion to reduce the annual amount that people can pay into pensions and still be able to qualify for tax relief. In fact, it will be reduced from £50,000 to £40,000 as soon as next year.
A Treasury spokesman stated, “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.”
Any reduction in the allowable tax-free lump sum amount will greatly diminish a person’s ability to save for retirement, and many savers consider the ability to take out a large tax-free lump sum the primary reason to continue with a pension.
However, similar changes made to ISAs would face much more hostile opposition, from both savers and the savings industry.
Rebecca O’Keefe, head of investment at Interactive Investor, said, “It would be totally insane to meddle with ISAs.”
The famous 1997 pension tax raid by Gordon Brown will seem rather mild in comparison to a raid on ISAs.