HMRC could reduce tax-free ISA limit to £0 for UK households

Chancellor met with City firms who told her the £300bn held in cash Isas could yield better results if they were invested into more volatile stocks and shares Isas.
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The Labour Party government has been urged to cut tax relief on cash Isas to steer savers to riskier investments. The Labour Party Chancellor met with City firms who told her the £300bn held in cash Isas could yield better results if they were invested into more volatile stocks and shares Isas.

Ms Reeves is said to have been open to the idea of cutting tax relief on the savings vehicle. However, experts have warned the move could disproportionately penalise pensioners, who typically opt for a more cautious approach to savings.

Jordan Clark, financial planner at Quilter, said: “Older savers, in particular, tend to hold significant amounts in cash Isas. The average Isa value at the end of 2021 to 2022 was around £9,477 for the 25 to 34 age group. This is compared to around £63,365 in the 65 and over group.

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"A Freedom of Information request from Lane Clark and Peacock also revealed that in 2019, 5.8 million over-65s held Isas, with 3.4 million holding exclusively cash Isas, totalling £87bn in these accounts.

“Removing cash Isa tax breaks would come as a much greater shock to pensioners.” Andy Briggs, boss of insurance group Phoenix, told the Mail on Sunday: “I’m hopeful that Rachel Reeves will see the sense in refocusing Isa tax incentives to align with the Government’s broader economic growth strategy.”

Anne Fairweather, of Hargreaves Lansdown, said: “The big barrier to investment is not the Isa framework. We should concentrate on building confidence to invest. Rather than changes to the products, which always risks reducing faith in the stability of these savings and investment products, the focus should be on boosting levels of investment.

“People like to pot their money. If we just had one Isa, we would need to give investment warnings to people who only held cash. There are a lot of smaller savings institutions like building societies and credit unions which offer cash ISAs and will not offer one combined with investments. They might exit the market.”