Chancellor backs off plan to slash £20k ISA limit
Sara White, Editor, Business & Accountancy Daily
Savers can breathe a temporary sigh of relief as chancellor ditches plan to cut ISA tax-free limit but could see allowance split between shares and cash
For now Rachel Reeves has ruled out the reduction of the current £20,000 tax free savings limit, which was facing a cut to only £4,000 a year in line with the Lifetime ISA limit, but has not confirmed whether there could a split between how much can go in cash versus stocks and share ISAs.
It seems that now the chancellor is only considering some tweaks to the current system. However, this only protects the £20,000 as the ISA figure, not clarifying where it can be saved.
This was confirmed on Monday, when the Chancellor told the BBC: ‘I’m not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that’s in a pension or in their day to day savings.
‘And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people.
‘But I absolutely want to preserve that £20,000 tax free investment that people can make every year.’
This is quite a turnaround for the chancellor, who is focused on trying to revive growth in the economy, one plank of which was encouraging more investment in the stock market.
Whether cautious ISA savers were the right target audience for upping their risk, is another question. However, ‘preserving’ the £20,000 limit does not mean the whole amount could continue to be saved in a cash ISA, more that the figure could be split between types of ISA accounts, for example. More details need to be available before any decisions can be taken, and there is likely to be progress on this before the summer recess if the announcement is to make the Autumn Budget.
While retention of the £20,000 ISA figure has been confirmed for now, it is important to remember that some reform is on the table, although no details have been shared publicly as yet.
Before the Spring Statement, a Treasury spokesperson told Business & Accountancy Daily: ‘We want to help people save for their future goals and build greater financial resilience across the country.
‘We keep all aspects of savings policy under review.’
So, depending on the outcome of the Treasury’s ISA review, this could still affect the total amount of tax free savings held in ISA accounts, for example, the cap on the split between cash, and stocks and shares ISAs.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: ‘Rachel Reeves did not comment on the cash ISA limit specifically, so we’re likely to have to wait for the outcome of the consultation for clarity.
‘The fact there won’t be a change to the overall ISA limit is welcome in itself. The government has clearly been listening when it comes to the importance of choice, flexibility and information to support people making the best savings and investment decisions.’
But the chancellor is still looking at ways to encourage more investment in stocks and shares ISAs, although she has backtracked after the backlash to the ending of the generous £20,000 tax free break for savers.
With the highest tax burden for decades and millions more being dragged into higher tax brackets by the end of this parliament in 2029, the appetite for reform dissipated. For months powerful voices from banks, building societies and pension providers had been warning that the move could be very negative, particularly for future pensioners if the incentive to save was removed.
Only last month, the chancellor told MPs on the Treasury Committee that ISA reform was ‘worthwhile’ and Treasury minister Emma Reynolds was responsible for this brief and should be called in by the committee if they wanted more information.
With money in short supply, reducing the tax relief on savings interest could have been a good revenue generator for the cash strapped country, with an annual bill of nearly £7bn a year for the tax break.
