The Treasury's move to increase ISA limits is nothing more than a ploy to raise revenue, a high profile IFA warns.
Premier Wealth Management managing director Adrian Shandley believes the motivation behind the Chancellor’s ISA adjustment is purely based on collecting more from consumers, by encouraging people to transfer from cash to unit linked ISAs.
Shandley is speaking in response to two reports released by Treasury economic secretary Kitty Ussher MP earlier this week, in which she noted the Government's ISA tax incentives have been “successful” in encouraging savings.
But Shandley says the Government wants to shift the balance to unit linked ISAs, as the cash component offers far greater tax relief.
“If people switch to unit linked ISAs the Treasury will win, especially as there is no route of return for money switched,” Shandley says.
“The government can say all it wants but it’s the rich people taking them up (ISAs) and the poor people left without.”
From April 2008, the yearly saving limit in an ISA will be £7,200, of which up to £3,600 can be in cash. Investors are currently allowed to deposit up to £7,000 in a shares ISA, or £3,000 cash into a mini ISA, with the option of adding a further £4,000 in equities.
Ussher says the reports show one in three people had been encouraged to save by the existence of ISAs and around a quarter of the 3,759 surveyed cite the tax incentives as the principle reason for saving.
“Next year we will be introducing reforms to build on that success,” Ussher says. “We will make ISAs simpler to use, more flexible, and more generous with a higher investment limit. We hope that these changes encourage even more people to use ISAs to save.”
TISA director general Tony Vine-Lott says the fact 17m people hold an ISA suggests the system is working.
“ISAs are an increasingly popular savings vehicle that really appeal to the consumer,” he says.
“They are well known, allow savings for a multitude of purposes while allowing flexibility that many consumers find useful, and are increasingly fulfilling a long-term savings need.”
But although Vine-Lott approves of the vehicle, he says the Government needs to do more to encourage further saving.
“We are working with them (Treasury) to try and use it as a core foundation for other schemes,” he says.
“We would like to see access for things such as the transfer of child trust accounts to ISAs, as well as giving employers alternatives to pay into ISAs which would not affect pension credits."
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