RACHEL Reeves is set to slash Cash ISA allowances in a big blow to savers, a report claims.
The Chancellor is expected to cut the amount savers can stash away tax-free into Cash ISAs from £20,000 to £12,000 per tax year, according to The Financial Times.
Earlier reports suggested Reeves was planning to slash the annual allowance to £10,000 in her Autumn Budget tomorrow.
It’s expected that lowering the cap to £12,000 will push savings into the UK stock market and also raise money for the Treasury.
Tory shadow chancellor Sir Mel Stride accused Labour of launching a tax raid on savers.
He told the Mail: “Hardworking savers shouldn’t be facing a tax raid to fund Labour’s addiction to ever more welfare spending.
“The Conservatives warned that tax rises were coming after Rachel Reeves lost control of the finances. Slashing the Cash ISA allowance would hit millions of responsible people trying to build financial security – especially in uncertain times.
“Labour should be backing savers, not making them pay for the Chancellor’s failures.”
There are four main types of Isa: Cash, Stocks and Shares, Lifetime and Innovative Finance.
These accounts have proved popular as savers can stash away up to a maximum of £20,000 a year without paying any tax on their interest or earnings.
Reeves had also considered a “Brit ISA” which would have been a fund with a minimum allocation of 20% UK equities – but ultimately walked away after an industry backlash.
What could the changes mean for you?
The Chancellor has not yet confirmed how much or if the tax-free limit will be lowered.
Any changes will be announced in the Budget tomorrow.
If the allowance does drop to £12,000 a year, don’t panic – this is still a significant amount you can save into your Cash ISA.
If you’re worried, then consider trying to save more into your account now ahead of any changes.
It’s highly unlikely that any changes would take effect immediately so you should have time to max out your ISA allowance.
Depending on what your savings goals are, you could also consider switching to a Stocks and Shares ISA – you could potentially earn more on your savings.
That’s because history suggests you get better returns over time by investing in the stock market as opposed to saving in a savings account.
However, you should only switch to a Stocks and Shares ISA if you’re happy to lock up your money for the next five to 10 years.
This is because your money can go up or down while you’re investing, but any losses should smooth out over this time.
It is also worth noting that everyone has access to a personal savings allowance, which is the amount of interest or savings you can earn without paying tax.
Your allowance depends on what rate of income tax you pay.
For example, a basic rate taxpayer – who has taxable income of between £12,570 to £50,270 – has a personal savings allowance of £1,000.
The same limit applies to a non taxpayer.
Meanwhile, a higher rate taxpayer – who has a taxable income of between £50,270 to £125,140 – has an allowance of £500.
Interest earned from an ISA does not count towards this allowance and is completely free from income tax.
Is a Cash ISA right for you?
By Emily Mee, Consumer Reporter
WHETHER a Cash ISA is the right option for you depends on how much money you have to save, as well as your income tax threshold.
Basic rate taxpayers can earn up to £1,000 interest tax-free a year, while higher rate taxpayers get £500 a year tax-free.
If you think you will earn more interest than your tax-free allowance, then an ISA will protect you from paying income tax on interest from that account.
On current rates, a basic rate taxpayer would need to have savings of more than £21,000 a year to exceed their personal savings allowance and become liable for tax on interest.
So if you have less than this, then focus on finding the best rate and do not worry about whether it is an ISA or not.
If you have more than this then you should put your cash in an ISA.
If your income is nearing a higher rate threshold for tax, then any savings over £10,000 would be better off in an ISA.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “If the Government decides to cut the personal savings allowance, you’ll be grateful for your ISA.
“However, average earners with modest savings might be reasonably sure they won’t pay tax on their savings this year.
“For now, savers with only small nest eggs can earn more interest in a fixed non-ISA.
“You should also look at moving your ISA account to one paying higher interest, as there is £54billion sitting in accounts paying less than 2%.”
Sarah added: “Money in cash ISAs is particularly ‘sticky’, so there’s a real risk people put money into one, and don’t keep an eye on the rate.
“It can mean the rate is gradually cut over time, until you’re getting a miserable return.
“There are some great rates around at the moment, so a switch can be particularly rewarding.”
Transferring your Cash ISA to a new provider is generally straightforward. Your new ISA provider will handle the entire process.
Check with both your current and new providers about any potential transfer fees or penalties. Once you’ve chosen a new ISA, apply for it with the new provider.
Cash ISA transfers usually take up to 15 working days. However, it can sometimes take longer, so it’s best to allow up to 30 days.
Alice Haine, personal finance analyst at Bestinvest, previously told The Sun: “ISA rules may change, or they may not, so savers should continue to view ISAs as a valuable tool for protecting their savings and investments from tax.
“This is a ‘use it or lose it’ allowance, so either you max out your £20,000 tax-free ISA allowance this financial year – or as much of it as possible – or you lose it. If the Chancellor does reduce the Cash ISA allowance at the Budget, the change is unlikely to come into force immediately.
“Providers need time to update their systems so there is likely to be a lead-up time with any change potentially happening at the start of the new tax year on April 6, 2026 – giving people enough time to take advantage of the existing, higher, allowance while it remains in place.”
And you don’t need to use a ISA product to save cash.
For example, some people choose to put their money away in an easy-access savings account.
These are accounts that pay interest for money you save, but also let you access cash when you need it.
You can also use a fixed-term saving account, where you lock your money away for a period of time to earn interest.
The amount of interest you earn is usually set at a fixed amount and there is a penalty to withdraw your cash. This can include losing your interest.
