Fidelity International is urging the Chancellor to reinstate dividend tax credit for equity Individual Savings Accounts (ISAs) with immediate effect.
In a letter to the Chancellor, Fidelity International's UK managing director, Gary Shaughnessy, says the company was "disappointed" by the removal of the tax credit on dividends from shares held within in ISA. He says the withdrawal of this credit ensured equity ISAs were no longer perceived to be tax-free.
Fidelity estimates the re-introduction of the dividend tax credit could increase the returns of existing savers by up to 13% over 10 years and would encourage new saving.
The company says this would contribute to reversing the recent collapse in Britain's savings rate and be in line with the Government's stated policy of encouraging people to take greater personal responsibility for their financial security.
Figures from HMRC show that in 2004/05, the first year of the new legislation, £7.5bn was invested in ISAs, less than half the £16.1bn invested in the 1999/00 tax year. The numbers of subscribers to ISAs fell over the same period by 1.9m from 4.57m to 2.67m. Subscriptions had not recovered by 2007/08 when 3.23 million people invested a total of £10.4bn into ISAs.
Adrian Lowcock, senior investment adviser at Bestinvest. says he agrees with Fidelity's comments saying the removal of tax credits on dividends went by without a "whimper from investors".
"The change in the rules has lead to confusion about the tax benefits of ISAs, now having to be described as tax efficient and not tax free, which only propagates misleading and unclear communication. It is hardly surprising investors have withdrawn such a large amount from ISAs," he says.
Lowcock says the Government has a responsibility to encourage clear and not misleading communication on products.
"They should lead the way, a tax free ISA, with no strings or confusing regulation will be a strong incentive for savers who have been punished enough recently. What better way to celebrate the ten year anniversary of the ISA than to reward savers with a tax free income."IFAonline
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