Savers worried about changes to Cash ISA rules due to a strongly rumoured ‘raid’ by Chancellor Rachel Reeves have been given a fresh update by finance experts today.
The Express spoke to investment and financial giants Hargreaves Lansdown ahead of the Cash ISA tax grab expected to be confirmed later this month. Chancellor Rachel Reeves has repeatedly refused to rule out cutting the £20,000 annual Cash ISA limit down to as little as £4,000. Currently, savers can deposit up to £20,000 a year into a Cash ISA to shield them from tax, as you can only earn up to £1,000 interest outside an ISA before you owe extra tax to HMRC.
But with big reductions in the limits looming, many are asking what to do with their Cash ISAs, or whether they should open one.
Sarah Coles, head of personal finance at Hargreaves Lansdown, told the Express that there are moves you can make now which you ‘wont’ regret’ regardless of what happens to the rules.
She said: “The key is not to worry about rumours, especially given that the government hasn’t said anything about these things. Instead, focus on the moves you can make now which you won’t regret even if there are no major changes in the statement.
“If you were already going to open a Cash ISA or top up in the current tax year, then feel free to go ahead.
“There’s no rush but doing it fairly soon might help bring some peace of mind. Plenty of people are doing this, which has kicked off the start of the cash ISA season early this year.
“If you were planning to open a stocks and shares ISA instead – or to use part of your allowance for investment – there’s no need for any of this speculation to change your plans. Most people should have a balance between cash for the short term and investment for the long term, and it’s vitally important not to let this speculation throw you off track.”
The Chancellor has said she wants to create “a culture … of retail investing” to achieve “better returns” for UK savers amid reports she could cut the limit on Cash ISA deposits.
Rachel Reeves met senior City executives, where they reportedly discussed how to encourage people to invest more money in things like stocks and shares.
After the meeting, she was reported to be considering a £4,000 limit on how much people can put into Cash ISA per year, down from the current £20,000 ceiling.
It is thought that any change to Cash ISA limits, if implemented, will form part of the Chancellor’s Spring Statement on March 26.
Asked about the potential limit in February, Rachel Reeves told broadcasters: “It’s really important that we support people to save to achieve their aspirations.
“At the moment, there is a £20,000 limit on what you can put into either cash or equities (ISAs) but we want to get that balance right.
“I do want to create more of a culture in the UK of retail investing like what you have in the United States, to earn better returns for savers.”
More than 18 million people hold savings in a cash Isa, with about £300 billion stored in them.
Savings providers have said they are preparing to fight any move to bring down the deposit limit on a cash Isa.
Tom Selby, director of public policy at investment firm AJ Bell, told the PA news agency it is “hard to imagine” an Isa system that does not let investors hold a significant chunk of their savings in cash.
He added that reducing the limit “may seem superficially attractive but there is no guarantee this money would then be deployed in long-term investments”.
