Rachel Reeves and Cash ISAs

The Chancellor has been urged to slash the tax breaks available on cash ISAs in a bid to boost the economy and support London’s stock market.

Cash ISAs are by far the most popular type of savings account in the UK, allowing savers to earn tax-free interest on contributions of up to £20,000 a year.

Figures from HM Revenue & Customs show that around 18 million people currently have a cash ISA, with those accounts shielding around £294bn from the taxman.

However, City firms are lobbying Rachel Reeves to limit or scrap the tax relief available on cash ISAs to persuade people to put their money in tax-free investment accounts, known as stocks and shares ISAs, instead.

They argue this would not only generate better returns for savers but also boost the economy by driving more investment into firms listed on the London Stock Exchange, which suffered an exodus of firms last year.

However, if tax relief was scrapped on cash ISAs, some savers could be hit with tax bills of more than £2,000, according to figures from The i Paper.

Any move to remove the tax breaks available on cash ISAs would amount to the biggest shake up of the savings market since they were first introduced in 1999.

Given the popularity of cash ISAs, it would also be likely to be an unpopular move.

Building societies have also raised fears that any initiative designed to make cash savings less appealing could have a negative impact on the price and availability of mortgages.

That’s because cash ISAs are an important source of funding for banks, building societies, credit unions and other providers, who use the deposits to fund loans to households and businesses.

Robin Fieth, Chief Executive of the trade body the Building Societies Association, says: “Cash ISAs help consumers to achieve their savings goals. They play an integral role in the UK savings market and have done for many decades. They represent a policy success upon which we should seek to build, rather than to curb.”

What should you do next?

In short, you don’t need to do anything yet.

Just because firms are calling on the Chancellor to slash the tax relief offered on cash ISAs, it doesn’t mean she will act on that suggestion.

And that means that you will continue to earn interest tax-free in your cash ISA until the Government says otherwise.

ISAs have become so popular that any move to water down their benefits would likely be met with significant resistance.