With a new government freshly in the box seat and studying an ominous-looking £20bn hole in the deficit, there might be an important question on many British investors’ lips: Are the benefits of one of the world’s great investing vehicles about to come to an end? Is the 25-year run of the Individual Savings Account (ISA) not long for this world? In the most simple terms, is the Stocks and Shares ISA safe?

Safe or not?

The ISA is certainly a contender for the chopping block. Labour has promised not to touch taxes that would affect working people like income tax or VAT. That cuts off the biggest sources. And with ISAs in total estimated to provide £7bn of relief, there is a decent chunk of moolah here that could be rerouted to the tax purse.

One plan put forward by think tank Resolution Foundation was to set a £100k cap on ISA accounts. It’s unclear from that report (that I could see) whether that meant £100k in deposits or £100k in the accounts. Either way it would be a bit of a catastrophe for second income seekers. A 4% drawdown on that gets £4k a year. Not exactly retirement money. 

The good news is that I believe that plan and any other is unlikely. Resolution Foundation’s own data shows that the proposed ISA cap would generate only a fraction of the ISA tax relief – just £1bn a year. That’s hardly plugging that £20bn hole and such a tiny dent in the overall deficit doesn’t seem worth it to anger the 12m or so with Stocks and Shares ISAs. 

Latest news

Further good news comes from the government themselves. The latest reports are that they “don’t want to complicate the investment landscape”. They were referring to their shelving of the previous government’s British ISA plans but if we take it one step further then any cap seems like a rather large U-turn from that little quote.

As for what to put in my (hopefully safe as houses) Stocks and Shares ISA, British American Tobacco (LSE: BATS) is one stock that benefits greatly from the ISA’s tax benefits thanks to its large dividends. 

The firm has paid an 8.04% yield over the last year, one of the highest payouts on the FTSE 100. Inside an ISA, that cash (about £1,600 a year on the yearly maximum £20k deposit) is sent to me tax-free, avoiding the potential 39% dividends on higher rate taxpayers. 

Some may wish to avoid a business that is losing customers. While I accept this is the company’s largest challenge in the long term, global consumption is still rising and is projected to until at least 2030. As such, I own the shares myself.