What is likely to happen to Cash ISAs in Reeves spring statement | Personal Finance | Finance
There’s less than 24 hours before Chancellor Rachel Reeves unveils her spring statement and with it, the lid will be lifted on the government’s financial and economic strategy for the next six months until the full Autumn Budget.
While the UK economy teeters between recession and growth, the Chancellor has a task on her hands to try to balance the books and the signals are that she will slash at welfare budgets in a bid to get the country back on track fiscally. But one of the biggest questions from many looking to the spring statement on Wednesday will be: What will happen to my Cash ISA?
ISAs are a form of tax-free savings account which allows the holder to deposit up to £20,000 per financial year without paying tax on the interest generated.
Normally, you will pay tax on any interest earned which is above your Personal Savings Allowance. For someone earning up to £50,269, the Personal Savings Allowance is set at £1,000 – which means you can earn £1,000 of interest tax-free. Then, every £1 over that amount attracts a 20% tax – unless you put the money in an ISA.
For higher earners over £50,270, you only get a £500 Personal Savings Allowance and for over £125,000, you don’t get any allowance, so an ISA gets even more useful the more you earn.
Rumours have swirled for months that Rachel Reeves is looking at cutting Cash ISA deposit limits down, after a suggestion by financial firm Fidelity to peg the cap as low as £4,000 per year. In turn, stocks and shares ISAs would be unaffected, which in theory would encourage people to invest their spare savings tax-free instead of holding them in cash.
The latest information suggests that any changes which are made to Cash ISA rules are not likely to be introduced in the spring statement on Wednesday but will instead be unveiled later this year, in the Autumn Budget.
A background briefing from the Commons sets out that there could be announcements on spending and tax, though, so it’s not impossible that a change of policy on Cash ISAs could happen in the spring statement.
It says: “The Chancellor will respond to the [OBR] forecast in her spring statement in the House of Commons. The spring statement was expected to largely be a response to the OBR’s forecast but there is speculation that there will also be announcements on spending and, possibly, tax, to ensure the fiscal rules are met.”
Last week, money expert Martin Lewis addressed the rumours around the industry on his ITV The Martin Lewis Money Show Live.
He said: “Apparently it’s not coming in the spring statement, I don’t have that confirmed, that’s other people’s reports.
“But it might come in the Autumn Budget, it’s still being considered no decision’s been made.”
Martin then said that although this isn’t confirmed, he wanted to make it ‘plain for everyone’ that you should not be pulling money out of your ISA.
He continued: “Now if that’s right, and I haven’t spoken to the Chancellor on this so I don’t know, I just know everything I’ve read on it, let’s just make it plain for everyone. Some people say ‘take your money out of Cash ISAs’, that would be bonkers. Bonkers.
“What it would mean is, you could put £20,000 in this year, you could put £20,000 in next year if she doesn’t drop it on April 6 and now you’ve got £40,000 but maybe the year after, I can only put £4,000 in. So I’ve only got £44,000 protected. Wouldn’t take money out of those! They’re still protected.
“I think it would be very unlikely that they’d change that. The rumour is talking about being able to put less in Cash ISAs in future in order to try to encourage people to invest.”
The spring statement will be delivered on Wednesday, March 26 at approximately 12.30pm, following Prime Minister’s Questions in the House of Commons.
