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Cut to Cash ISA allowance criticised as ‘naïve’
The fight for the future of the cash ISA continues as one of Britain’s biggest building society has waded into a row over whether the government should cut tax breaks on cash ISA's, arguing such a move would reduce the availability of mortgages for first-time buyers.
As covered in our previous article on the cash ISA threat, Rachel Reeves is being lobbied by City firms to scale back or remove tax breaks on the popular cash ISA's. They are putting pressure on Reeves to make these changes so that more focus is put on the riskier practice of investing in the stock market, which they say would boost economic growth and could deliver higher returns to individuals over the long term, although as with any investment that is not guaranteed.
Richard Fearon, CEO of Leeds Building Society, criticised the increasing push from certain City brokers and fund managers to cap cash ISAs in an effort to steer savers toward stocks and shares. He warned that lowering the £20,000 annual cash ISA limit would not only be unpopular among customers but could also lead to higher mortgage rates.
“It’s naïve at best, or deliberate misinformation at worst, for fund managers to say money saved in cash ISA's is dormant,” he said. “We use it to fuel our mortgage lending. If you significantly reduce that funding, mortgage rates would become more expensive for borrowers.”
A survey to Leeds Building Society customers last year found that only 7 per cent were interested in opening stocks and shares ISAs in 2024. It’s clear that many people are not interested in the more risky stocks and shares ISA over the more secure cash ISA, despite what big city firms want.
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.
A stocks and shares ISA is a tax-efficient account that allows you to invest in shares, funds, bonds, and other assets while being sheltered from income and capital gains tax.
You can save up to £20,000 each tax year and receive tax-free interest payments, so when the value of your 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 a 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 and any potential losses that may happen. That is why getting professional advice can be important for understanding your objectives and options.
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.
Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.
