Upcoming and further rumoured changes to the ISA regime would undo a decade of simplification and deter investors and savers from using them, according to Charles Stanley.
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.
The Chancellor is also rumoured to be planning to introduce a 22% charge on interested earned on cash held within Stocks & Shares ISAs – effectively aligning with the basic rate of tax on savings from next tax year (2027/28).
The proposed 22% charge would mark a return to the pre-2014 framework, when interest on cash held within Stocks & Shares ISAs faced a levy of 20%.
The system was changed by George Osborne’s ISA reforms in July 2014, which introduced a single, more flexible ISA allowance and made all cash returns fully tax free.
Wealth manager Charles Stanley claims that reintroducing a tax charge on cash within Stocks & Shares ISA would be ‘blurring those lines once again’ and could do a lot of damage to the clarity and appeal of ISAs.
Rob Morgan, chief investment analysts at Charles Stanley, said that ISAs have been one of the UK’s most successful financial products due to their simplicity.
He said: “Encouraging more people to invest is undoubtedly a sound policy objective. Yet there is a risk that increasing complexity and, in particular, removing ‘gateway’ options such as holding cash or low-risk assets within a Stocks & Shares ISA could run counter to that.
“Rather than nudging cautious savers towards investing, a more complex and restrictive system may simply deter participation. In that sense, the reforms risk undoing part of what has made ISAs so effective over the years. Simplification helped broaden their appeal, but reintroducing complexity may narrow it.”