Are Cash ISAs now under threat?

Multiple City Investment firms are lobbying for Chancellor Rachel Reeves to ‘scale back’ incentives like cash breaks for Cash ISAs in an apparent effort to boost UK financial services and the economy by encouraging savers to ‘invest’ instead of ‘save’.

Companies including Insurance group Phoenix and the London Stock Exchange Group have urged the Chancellor to consider that the nearly £300bn held in Cash ISAs could deliver higher returns for savers if invested in stocks and shares, while also boosting the declining equities market.

Our recent article on the Lifetime ISA under threat covered the discussion around scrapping the popular Lifetime ISA, something that is also currently being considered by the Government. With the Cash ISA now under threat too, it’s clear that savers may soon be facing turbulent times.

Unsurprisingly, consumers and personal finance experts have pushed back against the proposals. For many savers, these basic and straightforward products form an invaluable part of their personal finances, owing to their lack of volatility and risk compared with investments, including the ability to withdraw money at short notice.

According to 2021/22 data from HM Revenue & Customs (HMRC), roughly 14 million of the UK’s 22 million ISA holders only use Cash ISAs, meaning that the potential changes will significantly impact millions of people who are simply trying to save responsibly.

What is an ISA?

An ISA, or ‘Individual Savings Account’, is a scheme that allows anybody to hold cash, shares and unit trusts free of tax on dividends, interest, and capital gains. Essentially, it’s a savings account that you don’t pay tax on.

A Cash ISA is a tax-free savings account that allows people to save cash without incurring income tax on interest. They have become more popular over the past two years due to rising interest rates increasing the competitiveness of savings products.

You can save up to £20,000 each tax year and receive tax-free interest payments, so when the value of your Cash ISA increases, you get to keep all of it tax-free.

While there is a £20,000 allowance in place for how much you can put in a year, there is not a cap on how much you can accumulate in an ISA over your lifetime.

When choosing a style of investment to suit your needs, you may want to consider how long you plan to invest for and how much you would like your money to grow. It is also important to understand what movement in value you may or may not be happy with because of investment ‘risk’ and any potential losses that may happen if you have to withdraw or ‘sell’ before you are ready. That is why soliciting professional advice can be crucial for understanding how to take those first steps towards a secure financial future.

If you want to find out more, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers to see how we can help.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax and cash flow planning.

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.