Savers and financial advisers campaigning against the government’s plans to scrap tax breaks on existing PEPs and TESSAs to make way for the Individual Savings Account applauded the Chancellor’s decision to amend the system.
But some maintain the changes do not go far enough. PEPs opened before 6 April next year will now enjoy the same tax advantages as the ISA, which is expected to silence much of the criticism levelled at the government’s initial plans to replace PEPs and TESSAs with a smaller-scale, instant-access savings scheme.
The move quelled fears the #50,000 limit on funds which could be held tax-free in an ISA would penalise PEP holders transferring their money from the defunct schemes to an ISA.
Glenn Leitch, an Ernst & Young personal tax partner, said: ‘To continue with the plan as it stood would have been politically unacceptable, a move towards retrospective taxation. The plans would have meant snatching away people’s hard-earned money. But some of us had also hoped the #50,000 ceiling on investment would be increased.’
Professionals within the insurance industry were disappointed that, although the amount of cash which could be held in an ISA in its first year was raised to z3,000, the amount which could be held in life insurance remains z1,000.
Nicola Hayes, director general of the Investment and Life Assurance Group said: ‘On the whole the changes are sensible. There is no point forging nobly ahead with a product which nobody thinks is going to work. But we are going to have to go back to the Revenue to iron out some of the technical issues surrounding life assurance.’
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