With effect 6 April 2004, Personal Equity Plan and Individual Savings Accounts invested in UK equities will no longer be able to reclaim the 10% tax credit paid with dividends. Investors that hold individual shares have never been able to reclaim this 10% and that has been at least one of the arguments in favour of investing in PEPs and ISAs.
Recently, the Investment Management Association sponsored an amendment to PEP and ISA legislation that was tabled to be debated in the House of Commons. But, due to other issues taking too long to debate, the amendment was cut from the programme and may not be debated until the autumn.
In sponsoring the amendment to keep the 10% tax credit reclaim, the Investment Management Association said that if the tax credit was abolished, ISAs and PEPs would only be valuable to higher rate taxpayers.
Our View
There are few enough tax free and tax efficient investments in the UK and removing the tax credit reclaim just reduces them further. Whilst ISAs and PEPs shelter profits from Capital Gains Tax, if you are a basic rate tax payer and do not have a CGT problem, ISAs will become expensive due to their charges.
We understood that one of the major aims of the Government was to get people in the UK to save for their futures. If the Government keep removing the incentives, less and less people will want to save.
Learn more about PEPs and ISAs at the Savings Adviser.com. Read our feature ISAs are they really worth it? Are you happy with the performance of your PEP or ISA?
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