As we get closer to Rachel Reeves’ Spring Statement, Cash ISA rumours are swirling.
Latest speculation is that the chancellor is considering cutting the annual Cash ISA allowance to £4,000. Other rumours are that the Cash ISA could be scrapped altogether.
2024 was a record year for Cash ISAs, with savers adding close to £50bn – so if there are changes, it will impact a huge number of savers.
However, the key is that at this stage, all of this is pure speculation.
It’s never a good idea to let rumours dictate your financial decisions.
This article isn’t personal advice. If you’re not sure an action is right for you, ask for advice. Remember, ISA and tax rules can change, and benefits depend on individual circumstances.
Why is Rachel Reeves considering changing Cash ISAs?
The argument behind the change would be that it might persuade savers to invest instead, helping power British businesses, but this argument is flawed.
Cash ISA money is already working hard for the economy – funding the mortgage market.
Even if this change persuaded some people to use more of their ISA allowance to invest, there’s no wall of cash waiting to be freed up.
HMRC figures show two thirds of Cash ISA savers contribute no more than £5,000. And there’s nothing to say they would make the switch, because the ISA isn’t the reason why not enough people in the UK hold investments – many of them are holding back because of a lack of confidence.
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What could the government do instead?
There are some better solutions to this problem.
One of them lies in the review of what’s known as the Advice Guidance Boundary – which is going on at the moment and is looking into how to guide people to good financial decisions without having to pay for advice.
It will mean businesses can offer more targeted support, which will include guiding people to move long-term savings into investment. This will be a huge step forward and will be more effective than tinkering around with ISAs, a family of products which is seen as reliable and constant.
Everyone needs to balance their short and long-term financial needs across cash, investment and pensions.
People should always build up an emergency pot of rainy-day savings to help with any emergency – the Cash ISA is a great way to do this in a tax-efficient way.
It means the most likely outcome of any possible cut would be more diligent savers being exposed to tax.
There are also better ways to boost investment in the UK.
Rather than cutting the Cash ISA limits, an increase to the Stocks and Shares ISA allowance would mean more money flowing into UK investment, without impacting cash savers.
Greater access to initial public offerings (IPOs) would also bring more new money into the market.
IPOs are particularly useful to engage existing investors and potential new investors in opportunities in the market.
Scrapping stamp duty on shares purchased in London-listed companies would also help. It would be highly welcome to see this tax come more in line with other leading nations and make sure the playing field has been levelled for UK plc.
What should savers do in the meantime?
If you’re worried by all the talk, there’s no need to feel you have to do anything you weren’t already planning.
If you’re already going to open an HL Cash ISA or top up in the current tax year, then you might want to do so sooner rather than later if it brings you peace of mind.
This has the added benefit of taking advantage of some great deals while they’re still around. If you were planning to use an HL Stocks and Shares ISA instead – or alongside a Cash ISA – there’s no need to change your plans here either.
Speculation can be unsettling, but the priority will be to stick to sensible no-regrets moves that meet your needs, rather than being worried into taking steps you otherwise wouldn’t.
Remember, unlike the value of cash, investments can rise and fall in value so you could get back less than you invest.
Open or top up an HL Cash ISA to shelter your money from tax.
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