Hands off our Isas, Hunt – that’s a tax raid too far

Martin Lewis advises on moving your savings into ISAs

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The individual savings account, or Isa, was introduced by former Labour Chancellor Gordon Brown in 1999.

In contrast to most of Brown’s initiatives, this one has proved enduringly popular. In total, a staggering 27million adults hold Isas worth a mighty £687billion.

Typically, around 12million of us pay money into an Isa every year, so the total sums invested are only going to rise.

Which is great for us but not so good for HM Treasury, because it can’t get its hands on a penny of that money while we’re alive.

Everything saved inside the Isa tax wrapper is free of income tax and capital gains tax (CGT), for life. If you are married or have a civil partner, you can even pass your holdings tax-free onto them, when you die.

Only when they die will the money finally become liable to inheritance tax.

Each year, UK adults can invest up to £20,000 in an Isa, plus another £9,000 in a Junior Isa, on behalf of children and grandchildren.

It’s a brilliant tax break. Rather too brilliant, some think.

At a time when Hunt is thrashing around for every possible penny in tax, our Isa savings make a juicy target.

The Treasury has been treating our pensions as a cash cow for decades, beginning with Brown’s notorious stealth tax grab in 1997, which has so far cost savings an estimated £200billion.

Subsequent chancellors have slashed back the pensions annual allowance and lifetime allowance. Pensions tax relief is constantly under threat.

So far, Isas have escaped. That could soon change.

Hunt is already turned his guns on non-Isa investors by slashing the threshold at which they start paying capital gains tax on share price growth and income tax on dividends.

There’s a risk he could turn his firepower on Isas next.

I’ve been urging savers to make the most of their Isa tax-free allowance this year, ahead of Hunt’s CGT and dividend tax raid.

Now there is another reason to max out your Isa allowance if you can can, because it’s likely to come under assault in the years ahead

Isas are set to cost the Treasury £4.3billion a year in foregone tax over the next tax year, according to think tank The Resolution Foundation.

It has urged Hunt to cap the total people can save in an Isa at £100,000, calculating this will net the government £1billion a year in extra tax.

Isas favour the wealthy but letting them build large sums free of HMRC interference, it argues. The money saved by taxing them could be used to help families who have little or no savings.

More than 1.5million Brits have £100,000 or more saved in Isas. They’re now a ripe target and could be punished for doing the right thing by saving for their future.

This isn’t the first think tank to attack Isas. Two years ago, the Social Market Foundation complained that Isas mostly benefit older, richer savers.

It said the government should support younger, lower-income workers instead, in the cause of intergenerational fairness.

There’s a worrying pattern developing here.

Isas now stand accused of two crimes. Favouring the rich over the poor, and the elderly over the young.

This is happening at a time when the Treasury is short of money, and looking for excuses to hike taxes.

It’s not hard to see where this is heading, especially if Keir Starmer’s Labour Party wins the next election on a wealth distribution ticket.

To a degree, the assault has already begun. The Isa allowance was hiked to £20,000 in April 2017, but has remained frozen at that level ever since.

That means its value is falling in real terms, due to fiscal drag.

Hunt is pulling the same trick by freezing income tax and inheritance tax thresholds all the way through to 2028.

I think it’s unlikely he will do anything daft by slashing the Isa allowance in next week’s Spring Budget. But there’s no way he’s going to increase it.

I reckon it’ll be frozen for years, with a possible cut if Labour get in.

Either way, the message is clear. As the annual Isa deadline of midnight on April 5 looms, it’s more important than ever to use it or lose it.

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