Chancellor Rachel Reeves has delayed the release of ISA reforms due to concerns over potential loopholes, according to reports. The proposed changes, originally announced last year, include cutting the annual ISA limit from £20,000 to £12,000 for under-65s from next year, a move that has been criticised by savers.
Under the plans, Reeves was reportedly considering a 22% charge on interest earned from stocks and shares ISAs. The reforms are intended to encourage investment over cash savings, but critics warn they could complicate the ISA system.
Details of the Proposed Changes
New ISA rules are set to take effect in April 2027. Pensioners will be protected and retain the existing £20,000 limit. For under-65s, the overall £20,000 ISA allowance will remain, but it will be split: £12,000 into a cash ISA and £8,000 into a stocks and shares ISA.
However, a report in The Telegraph suggested that ISA holders could potentially avoid the levy by placing a small amount of money in equities while holding the remainder in money market funds. The Treasury is now reassessing how the policy would operate, leading to the delay.
Political Reaction
Shadow chancellor Sir Mel Stride criticised the plans, stating: "Rachel Reeves should ditch these plans for a tax raid on savers. Not only are Labour punishing people for doing the right thing and saving responsibly, it's also now clear that these changes will be a complete nightmare to administer." He also warned that ongoing uncertainty surrounding the reforms risked "leaving people in the dark."
Expert Analysis
Rob Morgan, chief investment analyst at Charles Stanley Direct, commented: "From April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for those under 65, while the overall ISA allowance will remain at £20,000. Older savers will retain the full £20,000 cash allowance. Alongside this, the Chancellor is reportedly planning to introduce a 22% charge on interest earned on cash held within stocks and shares ISAs – effectively aligning with the basic rate of tax on savings from next tax year (2027/28)."
He added: "The reforms aim to nudge savers towards investing rather than holding cash – a laudable aim. However, the suite of 'anti-circumvention' measures risks reversing much of the simplification of ISAs achieved in 2014, replacing it with a more restrictive and complex landscape."
Morgan further noted: "The proposed 22% charge in some ways marks a return to the pre-2014 framework, when interest on cash held within stocks and shares ISAs faced a levy of 20%. That system was swept away by George Osborne’s ISA reforms in July 2014, which introduced a single, more flexible ISA allowance and made all cash returns – regardless of whether they were from interest in a cash or stocks and shares variety – fully tax free. Reintroducing a tax charge on cash within stocks and shares ISAs means blurring those lines once again. A product that has long been marketed as a straightforward, tax-free wrapper will come with a significant caveat, and it remains to be seen how much damage that will do to the clarity and appeal of the ISA 'brand'."
