‘£100k doesn’t make you rich’: Fury at new Hunt tax raid on pensions and Isas | Personal Finance | Finance

He is being egged on by an influential think tank, which is calling on Ministers to cap the total amount people can save free of tax inside their Isa allowance.

Instead of being rewarded for putting money away, it believes savers should be taxed heavily to help those who have saved nothing.

Hunt is already thought to be lining up a tax attack on our pensions in his Spring Budget 2023 on March 15, and targeting Isas as well would strike a double blow against UK savers.

Millions are already struggling to put money aside for the future as the cost of living hammers incomes.

Every adult can save up to £20,000 a year into an Isa, but the Resolution Foundation wants to introduce a lifetime cap of £100,000.

This would amount to a further assault on investors as Hunt slashed both the dividend allowance and capital gains tax threshold in October.

Molly Broome, economist at the Resolution Foundation, said Isa tax breaks primarily benefit the rich, and the savings could be directed to help poorer families build savings.

Around 1.5million savers have £100,000 or more in Isas, she said, while 750,000 families have no savings at all. “This lack of financial resilience has left many exposed during the cost-of-living crisis, with families having to build up debts and fall behind on bills,” Broome said.

Capping Isas at £100,000 could save the government around £1billion a year, which it could use to expand the little-used Help to Save scheme aimed at low-income families.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said putting a cap on the total people can hold in Isas will punish savers for working hard to do the right thing. 

She said you don’t need to be enormously wealthy to build up significant Isa wealth over the long term. “If you had invested £180 a month since Isas were launched in 1999 and your money grew at five percent a year, you would have more than £100,000.”

This also risks scuppering those who saved hard to retire early before their state pension kicked in, Coles added.

Darius McDermott, managing director at investment fund platform Chelsea Financial Services, said: “£100,000 is not the pot of a rich person. This is money ordinary savers have slowly built up over decades.”

He said the Isa is an established tax-free savings product and the proposed cap would destroy the UK’s savings culture. “Where will the government be when we are all living in poverty in retirement?”

Hunt may further target savers by slashing tax relief on pension contributions.

READ MORE: State pension age fear – ‘Wait until 70 and get less cash than today’

Currently, company and personal pension payments attract relief at 20, 40 or 45 per cent, depending on the person’s tax bracket.

This costs HM Treasury a staggering £50billion a year, making it a juicy target.

Tom Selby, head of retirement policy at AJ Bell, said pensions tax relief is invaluable as it encourages people to save for retirement, which should ease some of the burden on the state when workers retire.

The annual pensions tax relief bill has increased by £15billion over the last five years but this reflects rising wages and the success of the workplace auto-enrolment pension scheme, Selby said.

Tax relief is not money down the drain, he added. “Every pound saved in a pension should help reduce the risk of people falling back on the state in their later years.”

Raiding the nation’s pensions for short-term gain would inflict untold long-term damage, Selby added. “Anything that undermines incentives to save risks being the straw that breaks the camel’s back.”