Savings revamp spells tax hits
With ISAs in the pipeline for 1999, PEP and TESSA providers fear the impact the new schemes could have on existing tax breaks.
Leading PEP and TESSA providers fear the government will slashar the impact the new schemes could have on existing tax breaks. available tax breaks when it introduces individual savings accounts in 1999.
High net worth individuals who have taken maximum advantage of the schemes could be hardest hit, with some providers warning that changes could be retrospective. Taxpayers investing their full PEP and TESSA allowance over the last 10 years will have pumped almost #100,000 into the system.
Providers, whose concerns were raised further by leaked documents revealing that ISA investment income may be taxed from 10%, are locked in consultation with the Inland Revenue in a bid to protect the existing tax benefits.
Currently, taxpayers can put up to £9,000 a year in PEPs and #9,000 over five years in a TESSA and pay no tax on income earned through the scheme.
But the government, which is due to publish a consultation paper by the end of the year, has vowed to introduce ISAs in April 1999. They will be designed to encourage people on low incomes to save.
Tony Wood, marketing director at Virgin Direct, said: ‘We want as many tax breaks as possible to stay and we want to make sure people are not retrospectively affected.’
He stressed that the new rules must be clear and not permit providers to construct baffling charging structures.
Michael Hayden, savings director at Legal & General, added: ‘Our preference is for tax incentives when a contribution is made.
‘Without that, what is going to make people change their spending habits?
The government needs to maximise the appeal of ISAs.’