UK to Cut Tax-Free ISA Limit in November Budget

UK Plans to Cut Tax-Free Cash Savings Limit in Upcoming November Budget

LONDON, Oct 25 — The British government is reportedly preparing to reduce the tax-free allowance for cash savings accounts in its upcoming November budget, according to The Telegraph. The move aims to rebalance existing tax incentives and encourage more investment in shares rather than cash savings.

Currently, individuals in the UK can save up to £20,000 ($26,842) annually in Individual Savings Accounts (ISAs)  tax-free vehicles that can include cash, stocks, bonds, or investment funds. However, most savers use ISAs primarily for cash deposits and rarely take full advantage of the yearly limit.

Government data shows that around one in three Britons holds an ISA, with total savings reaching approximately £726 billion. Despite this, the Treasury argues that cutting the cash allowance could help promote a “shareholding culture” and boost support for companies listed on the London Stock Exchange.

Financial Services Minister Lucy Rigby told The Telegraph that the government was “looking at the right balance between cash and shares in ISAs,” emphasizing the goal of helping citizens “be better off” through broader participation in the stock market.

Meanwhile, the UK Parliament’s Treasury Committee has cautioned against reducing the cash ISA cap. The committee warned that such a move might fail to encourage stock ownership and could even limit funding for mortgages, since many building societies rely on cash ISAs to support home loans.

The report also noted that a lack of financial education not the structure of tax incentives is the main reason many Britons avoid investing in shares outside their workplace pension schemes.

While no final decision has been announced, The Telegraph reports that the government is considering cutting the cash ISA limit by half, to around £10,000 per year, though slightly higher thresholds remain under discussion. 

(Exchange rate: $1 = £0.7451)