The Treasury has confirmed the future of Rachel Reeves' Cash ISA reforms after John Healey replaced her as Chancellor, stating there are "no changes to current plans".
Ms Reeves announced the annual allowance for those aged under 65 would be cut from £20,000 to £12,000 at the Budget in November last year. The change will apply from April 6, 2027, while the limit remains £20,000 for people aged 65 or over.
Background to the reforms
The former chancellor argued that reform of the tax-free Cash ISA would encourage savers to turn to investing and boost business funding as well as Britain's sluggish economic growth. Ahead of Ms Reeves' announcement, building societies warned the change could put people off using Cash ISAs to save for house deposits.
After Andy Burnham replaced Sir Keir Starmer as prime minister and appointed Mr Healey, the new Chancellor has been under pressure to reset the ISA changes.
Industry reaction
Tom Selby, Director of Public Policy at investment platform AJ Bell, said earlier this week that Ms Reeves' "disastrous" approach to reform undermined the success of ISAs. He said: "ISAs have been successful because they are easy to understand, flexible and tax-free – all of which is set to be undermined by Healey’s predecessor’s disastrous approach to reform."
Mr Selby described the allowance cut to £12,000 and measures to stop savers getting round the limit as a "Reeves pet project" which had "little support" from retail investors. He added: "Rather than pushing ahead with this dodgy agenda, Healey has an opportunity to rip it up and start again, going back to Labour’s pre-election commitment to simplify ISAs as part of a drive to boost long-term investing."
What the changes mean
Besides the under 65 Cash ISA limit, savers will see a 22% charge on interest paid on cash held in non-cash ISAs. Cash-like assets, such as money market funds that pool investors money to purchase short-term debt securities, will be eligible for non-Cash ISAs, but these cannot make up 100% of investments in a non-Cash ISA account. Shares, funds, investment trusts and UK gilts are among the investments which would not qualify as being cash-like under the rules.
It will not be possible to transfer money from a non-Cash ISA into a Cash ISA, but the reverse will be permitted. Limits for Innovative Finance ISAs, LISAs and Stocks and Shares ISAs will remain the same.
