The government of Britain is expected to reduce the maximum sum of cash that individuals are able to deposit as tax-free savings accounts by half, in the next month’s budget, as the Telegraph newspaper reported on Saturday, quoting a government minister who indicated that tax incentives had to be rebalanced.
Under the current regulations, Britons can accumulate up to £20,000 ($26,842) a year in cash, shares, bonds, or investment funds in individual savings accounts, also referred to as an ISA, where the interest, dividends, or capital gains are not subject to tax.
Approximately one-third of Britons own an ISA, and the cumulative savings amounted to approximately 726 billion pounds.
The vast majority of ISAs only save cash and hardly make use of the £20,000 limit on annual deposits.
The Labor government of Britain announced in March that it wanted to encourage further share ownership and increasingly support those companies listed in London, and that cutting the tax benefit on savings made in cash was one of the ways it was looking at doing it.
According to a report released on Saturday, the Treasury Committee of the British parliament asked the government to avoid cutting its limit on cash ISA because it would not stimulate ownership of shares, but may affect the availability of mortgages.
Cash ISAs are commonly used by building societies to raise funds to offer mortgages to buyers.
A report by the parliamentary committee indicated that the key factor that had inhibited a significant number of Britons from investing in shares other than those managed in workplace pension schemes was not tax incentives but financial education.
According to the Telegraph, it was decided to cut down on the amount of cash that can be deposited in an ISA, where people will be required to invest in shares to make the most out of the full tax-free allowance.
The Telegraph reported financial services minister Lucy Rigby, adding that “We are looking at the right balance between cash and shares in the ISA. The bottom line is we want people to be better off, and one way we can do that is to build a shareholding democracy in this country.”
The newspaper stated that no final decision on the extent to cut the cash ISA limit had been arrived at, but it was most probable that the cash limit would be cut to £10,000 a year or a slightly higher amount.
