The investment industry has stepped up warnings to the government over plans to limit cash ISAs, arguing they risk reducing the willingness of British investors to back listed companies.
Sky News has learnt that a meeting on Tuesday involving officials from the Treasury and HM Revenue and Customs, as well as major industry players, including Hargreaves Lansdown, HSBC, and Lloyds Banking Group, led to a heated exchange of words over the implications of the Treasury’s reforms.
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Under plans confirmed by Rachel Reeves in November’s Budget, the Cash ISA allowance will be reduced from £20,000 to £12,000 from April 2027, except for savers under the age of 65.
The Chancellor said the move aims to encourage more investment in the UK stock market, with £8,000 balances available to invest in stocks and shares ISA products.
The Treasury and HMRC are now preparing detailed anti-fraud rules, including banning transfers from stocks and shares and Innovative Finance ISAs to cash ISAs; The use of tests to determine whether an investment is worth holding in a stocks and shares ISA or is ‘cash-like’; And charges on any interest paid on stocks and shares or cash held in an Innovative Finance ISA.
The investment industry has been vocal in warning.
However, the investment industry has been vocal in warning that the rule changes will add complexity and penalise savers who are focused on derisking their portfolios before the age of 65.
There are also growing concerns that a more robust approach to taxing cash balances held in stocks and shares in ISAs would seriously damage their image as a tax-free investment option.
Any evidence that the reforms are weakening stock market investment ahead of the next general election would be damaging for Ms Reeves, who has directed the industry to work on a multimillion-pound campaign aimed at promoting retail investment to the public.
Many companies have already backed out from participating in that campaign due to cost and coordination concerns.
One industry person who attended Tuesday’s talks said, “It became clear at today’s meeting that significant reforms to ISAs are being made with very little understanding of how retail investors behave or the range of potential unintended consequences.
The implementation of fundamentally flawed changes has placed HMRC in a dangerous position.
“Rather than rushing into something that risks undermining retail investment, the Chancellor should go back to the drawing board and build an evidence base for sensible, long-term reforms aimed at supporting retail investors.”
The reforms will be subject to a consultation period, with draft legislation – in the form of amendments to ISA rules —being put before Parliament well before April 2027.
In the 2023-24 tax year, savers invested a record £103 billion in ISAs, of which almost two-thirds – £70 billion – was invested in cash ISAs.
Others present at Tuesday’s meeting included the Building Societies’ Association, AJ Bell, Fidelity, Vanguard and the Investment Association.
A government spokesperson said, “To encourage more investment in stocks and shares, we are making changes to ISA rules that will prevent breaches of the new lower cash ISA limit.
“We are already working closely with the industry and will publish clear guidance before the changes are implemented.”
