Returns on cash Isas do not trigger a tax bill, but tax can be owed on interest earned from ordinary savings accounts if it exceeds the personal savings allowance.

So much so, Isa accounts are currently more popular than ever. 

Savers have been ploughing in cash throughout the year amid the looming threat of a capital gains tax raid in this month’s Budget. 

Sarah Coles, of Hargreaves Lansdown, said: “An attack on Isa tax breaks would severely dent the nation’s ability to save and invest.

“A cap would apply the worst form of retrospective taxation, irreparably damaging the Isa’s reputation as the go-to place to build financial resilience.

“Second only to premium bonds, the Isa is a savings and investing national treasure which benefits over half of the adult population.”

Official figures show the value of all adult Isas in the UK is £726bn. 

A maximum of £20,000 can be deposited into Isa accounts each financial year, allowing pots to build considerably over time.

More than 4,000 people have become “Isa millionaires” after accumulating tax-free returns through investment Isas. The 25 biggest savers have amassed an average fortune of £11.6m.

A £500,000 cap would draw a line in the sand and prevent any more investors from breaking the million-pound barrier.

Shaun Moore, of Quilter, said: “If a cap were to be put in place, this may just put people off regardless of how high it is. 

“Isas have also grown to become representative of ambition and prosperity. The fact that by investing you can become an Isa millionaire is part of the allure – taking this away risks poisoning the Isa brand.”

Isas were introduced in 1999 to replace personal equity plans (Peps), which had been introduced by then-chancellor Nigel Lawson.

Today, a saver putting £20,000 in an Isa annually could expect to reach millionaire status after 25 years, if they achieved a return of 5pc

A lifetime cap of £500,000 would see the maximum ceiling reached within 12.5 years.

A Treasury spokesman said: “Decisions on tax are made in the round at the Budget.”



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