A financial expert has warned of the measures savers can take as the government presses ahead with plans to significantly change rules on Individual Savings Accounts (ISAs). The Chancellor Rachel Reeves is expected to reform rules around the amount of money that can be placed in an ISA tax-free each year in a bid to generate funds into the Treasury.
Currently, individuals have an annual allowance of £20,000 that they can use across a range of financial products including stocks, shares and cash ISAs. Cash ISAs are the most popular product used by savers and could see the limit reduced to as little as £5,000, causing panic amongst savers. Paul Williams, Managing Director at Solomon Global commented: “City think tank New Financial’s proposal to cap cash ISAs and divert the rest into UK equities might serve the markets and potentially give Chancellor Rachel Reeves a PR win on economic revival, but it does little for individuals seeking financial stability.”
Williams believes that diverting money from cash ISAs into other products where the threshold is expected to remain the same, would see savers ensure that money is not lost unnecessarily to tax.
He added: “Shares can offer growth, but not everyone wants to ride out market swings or track every tick on a chart to keep their tax-free benefits. If this goes ahead, savers may increasingly turn to gold to make up the difference.
“Physical gold, in the form of legal tender coins like Sovereigns, Britannias and the Queen’s Beasts series, provides a simple, CGT-free option with no limit and no reliance on corporate performance.
“For many, gold isn’t just about chasing returns (gold has seen a 43% increase in the last year), it’s about preserving wealth outside the whims of the government. While ISA rules can be redrawn with every Budget, the tax treatment of UK legal tender bullion coins has remained consistently favourable.”
The threshold at which cash ISAs could be reduced to is yet to be announced, but the measures are likely to have a significant impact on the way in which people save money and invest.
The Chancellor is expected to give a speech at Mansion House on July 15 where it is likely that she will set out the government’s growth and competitiveness strategy in financial services and potentially announce the controversial plans.
Reeves announced that the overall £20,000 limit would remain in place, but stopped short of stating the amount that can be kept in cash will also stay at this level.
Reeves said: “It’s really important that we support people to save, to achieve their aspirations.
“I’m not going to reduce the £20,000 ISA limit, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.”
The Treasury has been approached for comment.
