The ISA is a middle class tax benefit, just the sort of thing that a left of centre government will not like.

So when choosing to use one you should consider how it may be treated for tax in the future. For example would withdrawals become subject to income tax.

Pretty much every UK tax payer is allowed an ISA, this can be a Cash ISA or a Share Dealing ISA or a niche item the First Time Buyer ISA.

If you don't know much about ISAs then there are plenty of details on the web, but basically the big advantage of a ISAs is that capital gains are not subject to Capital Gains Tax.

This is of course irrelevant if you don't expect to make more than the exempt amount which is about £11K per year.

Provided that you are paying attention to Capital Gains Tax threshold opening a ISA is not as urgent as it was in the past.

Government has been sensitive to the low interest rates on offer to savers and has made big increases to the amount that can be added to a ISA during the year.

When I started ISAs had a funding limit of about £7K per year but for the 2017-2018 text year £20K can be added, of course there is no guarantee that this limit will not be reduced in the future.

In the 2020/2021 tax year this limit has not changed.

The Risk
Most experts will tell you to get an ISA, I have one and I do believe that it is the right thing to do. I also believe that there is a significant risk in using one and relying on its tax free status, you need to continually review the political landscape.

Whilst it is not clear how many people hold Share ISAs it does seem reasonable to believe that it is a quite small percentage of the population. I suspect that many non holders regard them, or would regard them if they knew they existed, as another tax break for the rich.

This makes them very easy targets for a government cash grab and I wouldn't be at all surprised to see a government change the rules and apply a tax at the time of withdrawal, whether this would be CGT or some new tax is unknowable.

Jeremy Corbyn's 2017 General Election manifesto has brought the very high tax and spend model back into the political mainstream.

If you are very risk averse then not having an ISA and using up your exempt amount every year and paying CGT will give you greater confidence in the value of your investment. The trouble is that this level of caution is that it will cost you so much, however the value of certainty is not something that anyone can decide for you.

On Saturday the 20th of May 2017 The front page of the business section of the Daily Telegraph had the headline "Record number of savers become 'Isa millionaires' after Brexit stock market boost"

Although the view is not common I believe that it is unsafe to rely on being able to sell shares and withdraw the cash from an ISA without any form of tax being levied.

Although the CGT free status is nice ISAs have tendency to trap you with your current broker, you would like to move but you can't quite be bothered. This is because there are often fees associated with them that non ISA accounts offered by the same broker do not have and its a bit of a hassle to transfer an ISA.

If you do want to change brokers and you have an ISA, the rules say that you can transfer the ISA, but what you can not do is sell the shares in your current ISA, take out the cash and create a new ISA account with the new provider. You can't do this because you will run into the annual deposit limit for ISA deposits.

Transferring ISAs is not a particularly competitive area so don't expect that massive amounts of resources have been expended to make this a cheap, quick and easy process, also expect to pay fees to both the new and old provider.

The 2016 EU referendum is a good example of another problem, once you have significant funds, say more than say a year's allowance in your ISA, what happens when you are confused about the market? You can't easily withdraw the funds as you will not be able to put them back when your confidence returns so they are sitting there earning nothing.

Unless you change strategy and buy for a longer hold and to collect dividends.


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