Budget 2007 - ISA allowances increased
Wednesday, 21 March 2007 12:00
Gordon Brown has today said the amount of money that can be saved tax free in an ISA will be increased.
From April 2008 Britons will be able to put an extra £600 a year into a cash ISA savings account and an extra £200 into stocks and shares ISA.
This is the first increase in the amount you can save tax-free in ISAs since their introduction in 1999.
"An increase in the annual subscription limit to £3,600 for cash ISAs is good news for savers," said Adrian Coles, director-general of the Building Societies Association.
"The cash ISA has undoubtedly been a success story to date and raising these limits will help build on this."
However, the move did not draw universal praise.
"There are still further reforms we would like to see on ISAs - it is disappointing that the chancellor has not allowed transfers from stocks and shares ISAs to cash ISAs to be permitted," Mr Coles added.
"As well as representing a consistency of approach, this would make 'lifestyling' of portfolios much easier.
"Making transfers one-way-only - from cash to stocks and shares - as the chancellor has announced, means that errors of judgement or bad advice could never be rectified, while still retaining tax exemptions on the transferred money."
Additionally, while the cash ISA limit increased £600, the equity ISA rate only increased £200.
"We are disappointed to see such a small increase in the limit on equity ISAs, particularly as the Government recently cemented its commitment to ISAs by making them permanent fixtures in the savings landscape and simplifying them through the abolition of the complicated mini-maxi rules," said Richard Wastcoat, UK managing director of Fidelity International, the largest manager of ISAs and Peps.
"Giving a significantly larger increase to the cash rather than the equity element of the ISA sends the wrong message to the market at a time when the government claims to be trying to encourage long-term saving.
"With longer investment horizons, savers need to get the message that equity-based investment can offer better returns over the long term.
"We firmly believe that making it more tax-efficient to save will go a long way in encouraging consumers to make more provisions for their future, and urge the government to address this at the next budget by raising the limit to a more realistic £10,000."
Malcolm Dodds, Pep and ISA Manager at Alliance Trust said today's ISA limit rise was "nothing more than a consolation prize".
"This move has let down those investors who were hoping for ISA limits for stocks and shares to rise in line with inflation," Mr Dodds said.
"We hoped the government would stimulate long-term saving by taking the full step needed to bring ISA limits up to the level they should be if they had kept pace with inflation. Instead, all we have seen today is mere tinkering.
"Our calculations show if the ISA limit had increased to take account of inflation (Consumer Price Index) since the product was launched a decade ago, people would now be able to invest £7,892 a year, so even if this £200 rise took effect immediately, investors have still seen an effective ten per cent cut in their tax free ISA allowance since launch. In fact, the new limit will not be in place for another year."
Carolyn Steppler, director of private clients at accountancy giant KPMG was similarly unimpressed.
"Despite the chancellor's rhetoric, this was not a Budget for savers," she said.
"The much heralded ISA change does not come until 2008; he has given £600 with one hand and taken £400 away with the other by restricting the overall annual limit to ISAs to £7,200.
"To encourage saving, the chancellor could have massively increased the tax free limits for savings. Alternatively he could have aligned the taper rates for investment assets with the much more favourable rates for business assets, or introduced a form of roll-over relief where proceeds of sales of investment assets are reinvested in further investment assets.
"It's disappointing that he has not been bolder in his attempt to encourage people to save."
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