Prime Minister Andy Burnham may put the brakes on a major change to tax allowances. An expert has said there could be an "early review" of the new threshold cut, which is taking effect soon. He also pointed people to a little-understood tax-free option that he believes would be "a lot more popular" if more people knew about it.
Allowance slashed
The Government announced at the Autumn Budget 2025 that it would effectively slash the ISA allowance. You can currently deposit up to £20,000 into ISAs, with any growth within these accounts entirely tax-free. You can make deposits into cash ISAs or you can buy investments within an ISA wrapper, and you can currently split your allowance however you want between different types of ISA.
However, from April 2027, savers under the age of 65 will only be able to use up to £12,000 of the allowance as they see fit. The other £8,000 allowance will still be there, but you will only be able to use it to put funds into stocks and shares ISAs.
Expert calls for simplification
But the new PM may make some alterations here. Andrew Prosser, head of Investments at investment platform InvestEngine, said: "If Andy Burnham wants to put his own stamp on ISA policy, he should just make it simpler, starting with an early review of the package of reforms due to take effect from April 2027."
Mr Prosser warns people are often put off building their savings through stocks and shares ISAs, as they struggle to understand how they work. He said: "People are often reluctant to invest because they just don't understand it, so the simpler ISAs are to understand and the easier they are to access, the better.
"Having different cash ISA limits for people under and over 65, and the 22 per cent charge is all quite complicated."
22 per cent tax on cash holdings
You can hold cash within a stocks and shares ISA, but the Government has set out there will be a 22 per cent charge on any interest you earn on cash holdings within a stocks and shares ISA. Although the intention of cutting the cash ISA allowance is to get people into investing more, Mr Prosser fears the changes may in fact "push people away from saving or investing altogether".
More education needed
The investment urged people to look at stocks and shares ISAs as an option. With investing, you typically get better growth over the long term than you would through the interest rate applied to your cash savings. But it's important to be aware that the value of your holdings can go down as well as up.
Mr Prosser said there is a basic misunderstanding here: "Stocks and shares ISAs have been around for decades, but many people still think ISAs are just for cash.
"We need more education about the benefits of a stocks and shares ISA – that you can invest £20,000 a year and the returns are free from Capital Gains Tax and Income Tax, and that you can even generate an income from an investment ISA, which again, is tax free. If more people knew this, I think they would be a lot more popular."
