People with ISA savings warned of major change 'set to be announced' imminently
The Treasury has not yet officially announced any changes, but reports suggest they are just days away from being revealed
(Image: Shared Content Unit )
Rachel Reeves is reportedly poised to propose a reduction in the annual tax-free cash ISA limit as early as next week, with speculation circulating.
A cash ISA allows savers to put away up to £20,000 each financial year without paying tax on the interest earned. Cash ISAs are just one type among others like Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs. Savers have the option to distribute their £20,000 allowance across these various ISA categories.
But the Financial Times (FT) has indicated that discussions are underway within government to potentially diminish the cash ISA threshold to around £5,000.
Official confirmation from the Treasury regarding alterations to the ISA allowance remains pending, but an announcement from the Chancellor during her Mansion House speech on July 15 is anticipated by the FT. For money-saving tips, sign up to our Money newsletter here
This development follows calls from Emma Reynolds, Economic Secretary to the Treasury, advocating for increased investments in equities over cash savings, reports the Mirror.
A stocks and shares ISA offers returns based not on a fixed interest rate but rather the performance of the companies invested in.
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Martin Lewis has reacted to these emerging reports, expressing on X, once known as Twitter: "Reports @RachelReevesMP will announce a cut to the cash ISA limit at her 15 July Mansion House speech.
"If true, I think it's a mistake. I doubt it'll substantially nudge people to invest not save; said to be the aim... Currently you can put £20,000 in tax-free ISAs, whether cash (savings) ISAs, shares (investments) ISAs or the smaller types.
"It's said the reduction [would] only be for cash ISAs, so people can still invest the same tax free. NB At this point I should note, it is very likely to only impact future ISA limits (though whether the cut would start this tax year is a big question) so those with money already in cash ISAs shouldn't panic."
The Treasury confirmed in the March Budget that the Government was "looking at options for reforms" for the cash ISA.
Speaking to the BBC back in May, Ms Reeves stated she wouldn't reduce the overall £20,000 ISA limit - but didn't specify if changes to the cash element were on the horizon.
She expressed: "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."
Savers have been more susceptible to paying tax on their savings interest due to improved rates over the past few years. However, not all savers are required to pay tax on savings interest.
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If you're a basic-rate taxpayer, you can earn up to £1,000 in savings interest every tax year before tax becomes payable. For higher-rate taxpayers, this threshold is £500, while additional rate taxpayers do not receive any allowance.
Tax becomes applicable on the interest earned from your savings once these thresholds are exceeded.
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