A BBC personal finance specialist has cast doubt on rumoured amendments to the cash ISA tax-free allowance. Speaking on BBC Morning Live, Iona Bain highlighted three key issues that could make such changes by the government unlikely any time soon.
With rumours suggesting a potential reduction of the current £20,000 annual allowance down to possibly £4,000, concerns are mounting, although no official decision has been confirmed. Yet Chancellor Rachel Reeves has expressed a desire to foster an investment culture within the UK, which leaves many pondering the implications for cash ISAs and whether individuals might shift towards stocks and shares ISAs, which are set to retain their £20,000 limit with no signs of change.
Iona shared her verdict with hosts Helen Skelton and Gethin Jones – and provided reasons why an abrupt alteration to the ISA framework would be a surprise. The topic surfaced following an inquiry from a viewer troubled by recent news headlines about ISAs.
Gethin read out the substance of the viewer’s message, noting: “Some people are being put off from ISAs based on headlines they are seeing recently. Griff has got in touch to say [given] all the talk about scrapping tax-free ISAs, he is wondering whether it is still worth opening one.”
Iona said: “Well, really glad that you’ve asked this question because it’s worth clarifying that there are no plans to scrap the ISA – that is not on the table. What Griff is referring to there is recent speculation that the amount that you can save into a cash ISA could be capped at £4,000,” reports Plymouth Live.
She said the upcoming new tax year begins on April 6, and said: “We don’t know if that is going to happen in the next tax year. We have emailed the Treasury to ask and it says it is reviewing all aspects of savings policy.”
Iona also discussed reasons why such a change of course from the government could be unlikely. She said: “What I would say is it is unusual for such a big change to be introduced quickly before it is announced in the Budget, which is a big speech that the Chancellor makes,” and observed that “That’s not coming up until the autumn.”
She continued: “It’s also unusual for it to be introduced before it’s put out into a consultation. This is where everyone is asked for their views on an idea.”
She added: “And also it was not in the Labour manifesto before the General Election, so they wouldn’t have a direct mandate from the public to do it either. This is not the first time that a big change has been proposed in terms of the ISA system.
“Not that long ago, you might remember, there was some talk about a British ISA being introduced.”
This was a proposal under the previous Tory government to introduce an additional tax-free £5,000 allowance for investment in UK firms, on top of existing schemes, but it has not been implemented. Iona remarked: “You can draw a direct line between this British ISA and what is being discussed now with this cap on the cash ISA. It’s essentially all part of the Chancellor’s quest for growth.
“So Rachel Reeves really wants us to be saving a bit less and investing more, with the hope that maybe we would put our money into British companies that would then help the economy grow. Whether it would actually achieve that or not, well, the jury is out.
“That’s very much a debate that is going on at the moment. But just to reassure Griff, the ISA isn’t going anywhere any time soon. So if you want to put your money in it, go for it.”
What are cash ISAs?
There are four types of ISA – cash, stocks and shares, innovative finance, and lifetime ISAs, introduced in 1999.
GOV.UK states you do not pay tax on interest on cash in an ISA or income or capital gains from investments in an ISA. The website advises: “If you complete a tax return, you do not need to declare any ISA interest, income or capital gains on it.
“Every tax year you can save up to £20,000 in one account or split the allowance across multiple accounts. The tax year runs from 6 April to 5 April.
“You can only pay into one Lifetime ISA in a tax year. The maximum you can pay in is £4,000.”
But don’t fret—your ISAs don’t shutter when the tax year concludes. Your savings remain tax-free for as long as the funds are maintained within your ISA accounts, according to the government.
