People who have ISA warned to beware 'small print' in Budget

Rachel Reeves's £600 million ISA raid has been hidden in the Labour Party Budget small-print, it has been warned. The Labour Party chancellor has extended the ISA allowance until 2030 which effectively reduces the real value of ISAs over time due to inflation.

Relatively few people use the full allowance, but it is a powerful incentive to save and ensures that most people can make provision for the future (in tandem with a pension) without ever having to worry about tax. It would have been tempting for Reeves to impose a cap on the amount that savers can accrue in an ISA, but this would have penalised growth in these funds and would run counter to the recent abolition of the similar lifetime allowance for pensions.

Jason Holland at Evelyn Partners said: "Like the frozen income tax thresholds which are drawing millions more people into the higher rates of tax, the freeze on ISAs is effectively a stealth tax. Extending out the freeze to 2030 will certainly have a big impact, especially given the steep reductions in the annual capital gains exemption and dividend allowances set in train by the previous Conservative Government and Labour's increase in the rates of Capital Gains Tax."

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Myron Jobson, expert at Interactive Investor explained that without adjusting for inflation, the frozen allowance leads to a "de facto" reduction in its value. He said: "Inflation reduces the purchasing power of money over time, so a fixed ISA allowance allows you to have less in real terms each year."

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, the online investment platform said: "Along with all the freezes to other personal tax thresholds people will find more of their income gets swallowed up by tax as their income rises.

"However, when people consider the hike in capital gains tax rates and the proposal to bring pensions within the confines of IHT, savers need to be thankful that the ISA allowance remained the same and did not get reduced."

Hollands said: "Alongside pensions, ISAs are one of the two core pillars of long-term tax efficient savings in the UK and are more important than ever given the record tax burden the country faces and an increasingly hostile environment for private savers and investors."