With the spring Statement approaching, ISAs have been in the news a fair bit recently, with plenty of speculation that the rules governing how much you can put into an ISA may be set to change.
So what might actually happen? And what steps can you take to mitigate against any changes that do come into force?
The £4,000 Cash ISA allowance
One initiative that chancellor Rachel Reeves seems to be considering is cutting the Cash ISA allowance from £20,000 down to £4,000.
The theory is that doing this would encourage people to invest more of their money in the UK economy, and help get it growing. Is it possible that Reeves will do this? Yes. But will it have the desired effect? In our opinion, no – for two main reasons.
The first reason depends on how the allowance is introduced. Currently the £20,000 ISA allowance can be split any way you like amongst ISA types. The suggestion is that the Cash ISA might get a £4,000 cap within that. Should this be the case, savers are likely to simply move their money into the uncapped Stocks & Shares ISA.
A very simple example: you have £20,000 to save. Under the hypothetical new rules, you would simply put up to £4,000 in a Cash ISA as desired, and the rest into a Stocks & Shares ISA.
Additionally, most globally diverse stock portfolios only invest a fraction of funds in the UK (the UK usually makes up about 4% of any global portfolio that is weighted by the size of a country’s stock market).
There is a strong argument that investing too much in the UK stock market is too risky for most investors and so those funds would likely be invested in companies across the world. This could potentially benefit countries like the US, whilst doing very little to boost the UK economy.
The Lifetime Cap
Other speculation includes capping ISA contributions at a set lifetime allowance (the Resolution Foundation has suggested £100,000 per person).
If this were to happen then it is likely that pots already greater than this size would benefit from some sort of transition protection, as happened with pensions in the past. That means if you are already above that level, making the most of your 2024/25 allowance before the 6th April could be a good idea.
We believe that amongst all ISA types, Stocks & Shares ISAs deliver the best return for your savings, which (depending on how caps are introduced, as discussed above) could also help mitigate the impact of any lifetime caps that are brought in.
In other words, it is always better to make the most of any allowances (annual or lifetime) you do have, rather than not.
What should you do now/next?
Right now, the only thing you can do with confidence is to make the most of any 2024/25 ISA allowance you have left. For clarity, those allowances are:
- Each person over the age of 18 can invest up to £20,000 in total, per tax year, in ISAs (this means a couple could protect an additional £40,000 from tax, every year)
- For children under 18, up to £9,000 per tax year can be invested in a Junior ISA (JISA)
Depending on what happens in the spring Statement, you may also wish to use alternative options to your Cash ISA – a Stocks & Shares ISA may well be the most obvious alternative here. There is some suggestion that ISA changes may be pushed down the track to the autum Budget, which would give you more time to plan ahead.
This can be a complex area, and you may well benefit from financial advice. If you think that might be helpful, do reach out for a chat.
All figures correct as of 19 March 2025.
Any money invested carries an element of risk and you are not guaranteed to get back the money you invested. This article does not constitute advice and you should consult your financial adviser prior to any action.
