What we know about Rachel Reeves’ plan to cut Cash Isa allowances

According to reports, Chancellor Rachel Reeves will announce Cash Isas’s plans to reduce the annual allowance of Cash Isas later.

Accordingly Financial timesThe government resources have confirmed that the chancellor has planned to reduce the Cash ISA allowance by marking the first major change to the Jesus borders since 2017-18 tax.

Discussions are still believed to be in the precise reduction of cash ISAs, but movement is part of a strategy to encourage people to invest more than their savings. Reeves is expected to make the announcement in the Konak House speech on July 15th.

Although ISAs have different limits for specific Jesus types, individuals allow individuals to save or invest up to £ 20,000 per year.

Plans are thought to encourage people to deposit more money in the stock markets in order to achieve higher return in the long run.

What is cash Isa?

Cash ISA (individual savings account) works like a normal savings account, but it is a more tax -saving way.

Your money is not deposited on the stock market (and therefore, subject to market volatility) and because you do not pay income tax for the interest you earn, it is considered a stable and reliable way of saving.

There are two main cash types: variable and fixed ratio. Fixed ratio cash ISAS offers a little higher than variables, but it normally comes, provided that you cannot withdraw your money before the end of a fixed time.

There are four other types of ISA: stocks and stocks, innovative finance ISAs, Junior Isas for Lifetime Isas and Children.

HMRC statistics reveal that more than 7.8 million people hold cash in 2022-23 tax in 2022-23 taxes compared to 3.8 million with stocks (also known as investment ISAs).

The Bank of England figures show that records have invested a record of £ 14 billion in April in April this year and the highest amount recorded since the introduction of the product in 1999.

What are the possible changes?

Each tax year can save £ 20,000 in a Jesus, or you can divide it into more than one ISA without paying any tax on interest or earnings.

The preservatives can choose how to divide the tax -exempt limit between any of the above -mentioned accounts.

The person’s change means that savings will be limited to how much money they can put into cash ISAs with decreases reported by £ 4,000 to £ 5,000 per year.

It is not clear whether any other Jesus species will be affected.

Reeves in May,He plans to reduce the limit of £ 20,000 in an amount that can be placed on ISAs every year.“Very few people can save £ 20,000 a year… We still want people to save and I will definitely not reduce this limit.”

However, tax exempted investments did not exclude the restriction with cash ISAs at that time.

What effect would this have on the protectors?

It is uncertain how this will affect the habits of savings of reforms, but it can attract more investment in risky ISAs or stop investing each other.

Sarah Coles from Hargreaves Lansdown Financial Services believes that changes can leave less money to transfer investors from savings to investments.

“Cash ISAs are usually the first call port when people start, and when they usually find their feet, they slowly go into investments.

“Reducing the allowance means that savings are less available to transfer to stocks and stocks when they are comfortable to invest – it effectively reduces investments instead of increasing investments.”

Why does Rachel Reeves do this?

Reeves said that the changes would be a better return for British investors, and some of them believe that some of the changes in the city will grow for British companies.

Reeves said last month: “I want people to get better return than their savings in their pension or daily savings.

“And now, he receives a lot of money or bonds when he can be invested in stocks, the stock market and can get a better return for people.

“But I definitely want to protect the 20,000 £ tax -free investment limit that people can do every year.”

According to Gov.uk, at the end of the 2022/23 tax year, the UK adults kept a total of £ 725.9 billion in ISAS.

Isas is hoped to benefit by encouraging more investment in British companies and London City.

British Investment Bank Peel Hunt, in order to encourage the transfer of savings to stocks, the limit of cash ISAs should be reduced from £ 20 to 5 thousand £.

A report made by the Bank, “protectors, shares of cash” is the performance of the long -term registration, considering the fact that the registration will benefit from investing in stocks, “he said.

What do critics say?

Martin Lewis said that if the chancellor introduces them this month, the changes would be a “big mistake”.

Lewis, who wrote on X, said that the cash cut of Jesus was “P*SS people outside the economy ve and was not in favor of encouraging people to invest.

“My doubt is that for many people who use cash ISAs, many of them will have to pay more taxes for relatively insignificant savings interest rates, that they are an epifani and that ‘OOOH will fill the rest of my Jesus allowance with investments’.

“I will be disappointed if the chancellor chooses to listen to many building society and consumer groups that say that this is not a good route.”

A recent survey conducted by the investment platform AJ Bell found that only one of the five preservatives would invest more in the UK stock exchange if the cash allowance is deducted.

Aj Bell Personal Finance Director Laura Suter says: “However, in the long run, a deduction of cash in cash will make a shot on the arm for the UK stock market.

“More than half would put their money on a taxable savings account. Good news for a hungry chancellor for money, less for the London Stock Exchange.”

Andrew Prosser, the Investant’s Investment, said: “Change the cash component of ISAs, and more people are unlikely to have the intended effect on investing.

“The two-year-olds with the highest probability of contributing to cash is 25-34 and over and over. Young protectors are probably using cash or lifetime ISAs to finance their large life recruitment such as a home deposit, while old protectors can use to finance their short-term spending needs.

“None of these groups will not want to see that the value of their funds are fluctuated as in investment. It is more likely to continue to keep the same amount of cash, but more would be outside the Jesus tax packaging.”