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With a new government just taking the stage and staring into an ominous £20bn hole in the deficit, there could be a big question on the lips of many British investors: Are the benefits of one of the big investment vehicles about to come? of the world? an ending? Aren't the 25 years of existence of the Individual Savings Account (ISA) long for this world? In the simplest terms, is the stocks and Shares ISA safe?
Safe or not?
The ISA is certainly a contender for the chopping block. The Labor Party has promised not to touch taxes that would affect workers, such as income tax or VAT. That cuts off the most important sources. And with ISAs in total estimated to provide £7bn of relief, there is a fair amount of money here that could be redirected to tax coffers.
One plan put forward by the Resolution Foundation think tank was to set a £100,000 limit on ISAs. It is not clear from that report (that I could see) whether that meant £100,000 in deposits or £100,000 in the accounts. Either way, it would be something of a catastrophe for those looking for a second income. A 4% reduction generates £4,000 a year. Not exactly retirement money.
The good news is that I think that plan and any others are unlikely. The Resolution Foundation's own data shows that the proposed ISA cap would generate only a fraction of the ISA tax relief: just £1bn a year. That's not enough to plug that £20bn hole and such a small dent in the overall deficit doesn't seem worth angering the 12 million or so with stocks and Shares ISA.
Latest news
Other good news comes from the government itself. The latest reports are that “We don't want to complicate the investment landscape.” They were referring to his abandonment of the previous government's British ISA plans, but if we take it a step further, any cap seems like a pretty big U-turn on that little quote.
As for what to put in my (hopefully safe as houses) stocks and Shares ISA, British American Tobacco (LSE: BATS) is a stock that benefits hugely from ISA tax benefits thanks to its large dividends.
The company has paid a yield of 8.04% over the past year, one of the highest payouts in the market. FTSE 100. Within an ISA, that cash (around £1,600 a year on the maximum annual deposit of £20,000) is sent to me tax-free, avoiding the potential 39% dividends for higher rate taxpayers.
Some may want to avoid a company that is losing customers. While I accept that this is the company's biggest long-term challenge, global consumption continues to increase and is projected to do so at least through 2030. As such, I own the shares.
