Written by Private Client Associate Director, Liz Higgins
Chancellor Rachel Reeves has made it clear that boosting the UK economy is high on her agenda. One area in the spotlight is Individual Savings Accounts (ISAs). If you currently hold an ISA, or you’re thinking of opening one, you may be wondering what the proposed changes mean for you. While no decisions have been finalised, there is plenty of discussion about what could be coming.
This article outlines what we know so far, why the government is considering changes, and how you might be affected.
A refresher on ISAs today
ISAs have been a staple for UK savers and investors since they were introduced in 1999. The appeal is simple: you can earn interest, dividends, or capital gains without paying tax on your returns.
At present, there are four main types of ISA:
- Cash ISAs, which allow you to save cash without paying tax on the interest
- Stocks and Shares ISAs, which enable you to invest in a range of funds, bonds, and equities
- Innovative Finance ISAs, which are focused on peer-to-peer lending and crowdfunding investments
- Lifetime ISAs, which offer a government bonus to help you save towards your first home or retirement
Each year, you can currently save up to £20,000 across these ISA types, apart from the Lifetime ISA, which is capped at £4,000 and there is currently no upper limit on how much you can hold in total over time.
What changes are being proposed?
The government has not made any formal announcements, but there has been growing speculation about how ISAs could change to support UK economic growth. Below are some of the potential reforms being discussed.
Proposed change | What it means | Possible impact |
Limiting ISAs to investments | Cash ISAs could be phased out or restricted, shifting the focus to investment-based ISAs like Stocks and Shares ISAs. | Savers who prefer the security of cash may be pushed toward investments, which carry risk and may not suit everyone’s financial goals or risk appetite. Those seeking tax-free interest on cash savings could lose a key option. |
Introducing a cap on holdings | An overall limit (e.g. £100,000) could be imposed on the total amount an individual can hold across ISAs. | Savers who have built up substantial ISA balances may need to look at other tax-efficient investment vehicles. New contributions beyond the cap could lose their tax-free status, reducing long-term savings flexibility and potential growth. |
Simplifying ISA products | The government may merge or streamline the various types of ISAs to create a simpler system for savers. | A more straightforward system could make ISAs easier to understand and manage. However, fewer options might limit flexibility, particularly for those with specific savings goals or strategies that currently use multiple ISA types. |
Why is the government considering these changes?
The government’s focus is on encouraging more long-term investment in UK businesses. By shifting savings from cash into investments, the hope is to support the country’s capital markets and generate economic growth. This strategy is designed to stimulate business funding and create new opportunities for investors.
However, there is a balance to strike. Not everyone is comfortable with investment risk, and many people value the stability that Cash ISAs offer. Any reforms will need to take these concerns into account.
Who could be affected?
If you rely on a Cash ISA to earn tax-free interest with minimal risk, potential changes to this option could have a significant impact. You might need to consider whether you are comfortable with investment risk or whether alternative savings options could meet your needs.
For those with substantial ISA balances, a cap could limit how much you can continue to shelter from tax. You may need to explore other tax-efficient ways to save or invest if you are approaching, or already above, the proposed cap levels.
Higher-rate and additional-rate taxpayers could also feel the effects more acutely. If Cash ISAs are scaled back, and allowances like the Personal Savings Allowance remain limited, finding tax-efficient savings solutions could become more challenging.
When could changes happen?
There is no confirmed timetable for any of these reforms. While some announcements might be made in the Chancellor’s Spring Forecast or the Autumn Budget, any changes are unlikely to be implemented immediately. In the past, major ISA reforms have typically included transitional periods and have applied to future contributions rather than existing balances.
It is also possible that public consultations will take place before any changes become law. This means there should be time to assess the details and consider your options.
What should you do now?
Firstly, if you haven’t already made use of your 2024-25 ISA allowance, then do so now.
At this stage, the best approach is to stay informed and be prepared to review your strategy if and when changes are confirmed. Keeping track of announcements over the coming months will help you understand how your savings and investments might be affected.
If you’re wondering what these ISA reforms could mean for you, now is the time to start the conversation. The right strategy can help you stay ahead of the changes and make confident decisions about your savings and investments.
Talk to our private client team today. We’ll help you cut through the noise and focus on what matters most for your financial future.
