With effect from 6 April 2004 Individual Savings Accounts will no longer be able to reclaim the 10% tax credit currently allowed from UK dividends.
According to an industry commentator, the cost to the industry will be £6bn per year and effectively another revenue generator for the Government.
Our View
The tax credit removal situation has been going on since 1997 when pension funds lost the ability to reclaim the 10% tax.
With effect from April this year, the 10% tax credit reclaim will be removed completely and make it less tax efficient for savers.
We cannot believe that the Government are trying to encourage everyone in the UK to save but then take some of the incentives away. ISAs only had a 0.2% advantage for basic rate taxpayers anyway, now this figure is zero. However, never forget the capital gains tax advantages of ISAs.
Our view is that too much is being made of the 10% tax credit removal in terms of the ordinary consumer. But, on the larger scale you have to wonder what the Government's real plans are.
visit our Money Clinic - Are ISAs all they are cracked up to be.