The UK’s largest building society, Nationwide, has issued a stern warning about potential cuts to tax benefits on cash ISAs, suggesting that such a move could limit mortgage availability for first-time buyers. This comes amidst growing rumours that Chancellor Rachel Reeves is contemplating reducing ISA tax relief as a means of increasing revenue.
City firms have been pressuring the government to reduce or completely eliminate tax-free cash ISAs, encouraging savers to opt for riskier stock market investments instead. The Treasury has not dismissed the possibility of changes, sparking fears that millions of Britons could see their savings affected.
Nationwide has joined a number of financial institutions in cautioning against meddling with ISAs. Tom Riley, director of retail products at Nationwide, emphasised: “Cash ISAs not only help ordinary people save efficiently but enable us to fund our first-time buyer lending.”
Andy Moody from Leeds Building Society echoed this sentiment, warning that altering the ISA rules could have a “significant detrimental impact on mortgage lending.”
Given that first-time buyers are already finding it challenging to save for a deposit, any decrease in available mortgage funds could make home ownership even more elusive. With the Treasury in need of new funding sources, experts are concerned that a tax raid on ISAs could be on the horizon. Currently, over 18 million people hold cash ISAs with nearly £300bn saved tax-free.
The estimated tax relief on these products costs the government a significant amount. The annual £6.7bn cost of ISAs is a tempting target for a Chancellor seeking to balance the books. Emma Reynolds, the economic secretary to the Treasury, has questioned why “hundreds of billions of pounds” are sitting in cash ISAs, arguing that Britain needs to “drive an investment culture.”
However, critics caution that gutting ISAs would disproportionately impact pensioners and cautious savers who depend on their tax-free status as a financial safety net.
Potential ISA Reforms Under Labour. Among the changes reportedly under consideration are:
Reducing the annual ISA limit: The current £20,000 allowance could be significantly cut, drastically reducing the potential for long-term tax-free savings.
Imposing a lifetime cap: Labour has previously suggested a £500,000 lifetime limit, while some proposals call for a much lower £100,000 cap.
Scrapping the Lifetime ISA (LISA): Designed to help young people save for a home or retirement, the LISA has faced criticism, and a government review could signal its end.
Taxing Stocks & Shares ISAs: While seen as a driver of economic growth, these could also face restrictions, such as only allowing tax-free returns if invested in British companies.
The Building Societies Association (BSA) has written to Rachel Reeves, urging her to protect cash ISAs. Robin Fieth, CEO of the BSA, stated: “We strongly disagree with calls from City firms to restrict cash ISAs. These accounts are a vital tool for savers and a crucial funding source for mortgage lending.”
With the Budget Statement on the horizon, the Chancellor is facing increasing calls to clarify her stance. As the Treasury maintains its silence, both savers and lenders are growing anxious about a potential tax raid that could significantly impact the housing market and jeopardise the financial security of millions of UK residents.