In a significant move for UK savers, the Labour government has unveiled a major overhaul of Individual Savings Accounts (Isas). Chancellor Rachel Reeves announced the changes, which the Treasury claims will incentivise investment and deliver better returns, but critics are labelling them a 'stealth tax'.
Key Changes to Your ISA Allowance
The headline change is a substantial cut to the amount you can save in a cash Isa each year. While the overall annual Isa allowance remains at £20,000, from 6 April 2027, the cash Isa sub-limit will be reduced by 40%.
This means the maximum you can put into a cash Isa will be capped at £12,000. However, there is a notable exemption: savers aged over 65 will retain the original, higher cash Isa limit.
New Penalties for Stocks and Shares ISAs
In a bid to prevent savers from simply moving their cash into a stocks and shares Isa to avoid the new cap, the government is introducing a charge. Starting 6 April 2027, savers who hold cash, or invest in 'cash-like' assets such as money market funds, within a stocks and shares Isa will face a new financial penalty.
Furthermore, the new rules will ban transfers from an innovative finance Isa into a cash Isa, closing another potential loophole for savers.
Industry Reaction and 'Stealth Tax' Claims
Financial experts have reacted with concern. Jason Hollands, Managing Director of investment platform Bestinvest, stated that the move amounts to 'yet another stealth tax'.
He warned: 'Levying a charge on cash held within stocks and shares Isas will impact genuine investors who sometimes decide to park money in cash awaiting investment, or because they are nervous about the market environment.'
Hollands also expressed uncertainty about the government's definition of 'cash-like' investments, suggesting it could create doubt around money market funds and even short-dated bonds held within an Isa wrapper.
This shake-up forms part of Chancellor Reeves's stated ambition to create 'more of a culture in the UK of retail investing like you have in the US'. The announcement was accompanied by other fiscal measures, including an increase in income tax on savings and dividend income, and a new £2,000 annual cap on the earnings an employee can exchange for pension contributions with a National Insurance exemption.
