Chancellor Rachel Reeves may target Individual Savings Accounts (ISAs) in next week’s Budget, potentially introducing a £500,000 lifetime limit on these tax-free accounts.
This proposal harks back to an idea she floated in 2016 in an article for The Independent with analysts claiming it could be “dangerous” for savers.
Currently, savers and investors can contribute up to £20,000 annually to ISAs without paying tax on the returns.
These accounts have proven immensely popular, with 12.5 million adult ISA accounts subscribed to in the 2022-2023 financial year.
Any changes to the ISA system could have significant implications for savers across the UK, experts are warning.
Jason Hollands, of wealth manager Evelyn Partners, cautioned: “Meddling with ISAs would be quite dangerous for any Chancellor to do. It would very visibly be something that would not be popular.”
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Savers could be hit with a shock tax raid
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Data from investment platform Invest Engine reveals that the number of ISA millionaires has tripled in just three years.
Moreover, over a quarter of a million people have at least £250,000 in their ISA, with 30,000 savers holding between £500,000 and £750,000.
A £500,000 cap could affect long-term savers more than expected. Hargreaves Lansdown calculates that an investor contributing just half of the current annual allowance for 25 years, assuming 5% annual growth, would breach this limit.
Sarah Coles from Hargreaves Lansdown warns: “It runs the risk that it affects those who are considering investing.”
In her 2016 article, Reeves proposed a £500,000 lifetime allowance for ISA investments and suggested freezing the annual limit at £15,000 for the remainder of that parliament.
She also recommended that the Government match the first £100 that each basic rate taxpayer puts into an ISA.
These proposals were made when the ISA limit was £15,000, significantly lower than today’s £20,000 allowance.
When approached for comment, a Treasury spokesman stated: “Decisions on tax are made in the round at the Budget.”
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Labour MP Torsten Bell has previously called for ISA reform
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Recent figures from easymoney highlight the enduring popularity of ISAs in the UK.
In the 2022-23 financial year, there were 12.45 million ISA subscriptions, marking a six per cent annual increase and a substantial 23.4 per cent rise over five years.
Cash ISAs remain the most favoured option, with 7.9 million accounts held in 2022-23. However, Lifetime ISAs have seen the most significant growth.
The number of Lifetime ISA subscriptions has surged to 767,000, representing a remarkable 15.9% annual increase. Even more striking is the five-year growth of 398.1 per cent.