ISA numbers rise but will the Budget introduce new restrictions?

New figures released today show that the number of Adult ISA accounts subscribed to in 23-24 rose by 21% as savers affected by frozen tax thresholds and rising interest rates sought to shelter their savings from tax.

In total, 9.9m cash ISA accounts were subscribed to in 23-24, up 26% year-on-year, according to provisional figures published today, while the number of stocks and shares ISAs increased slightly by 7% to 4.09m.

By value, around £103bn was placed into Adult ISAs during the 23-24 year, an increase of £31.4bn over the previous year.

During that tax year, the Bank of England base rate was 4.25% in April 2023 before rising to 5.25% by April 2024. For taxable savings income (ie arising outside of an ISA wrapper), the personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers has remained unchanged since April 2016.

There are four types of Individual Savings Accounts (ISA) - cash ISA, stocks and shares ISA, innovative finance ISA and the Lifetime ISA. They allow savers to shelter their money from any income tax on interest, or any income or capital gains tax from investments. Every tax year you can save up to £20,000 in one ISA account or split the allowance across multiple accounts. However, you can only pay into one Lifetime ISA in a tax year, with a maximum you can pay in of £4,000 as LISA savings are matched by a 25% contribution from the Government. There is also a Junior ISA, the limit for which is £9,000.

At the Spring Statement in March this year, the Government announced that it would be looking at options for reforming ISAs in order to ‘get the balance right between cash and equities to earn better returns for savers’.

There was widespread speculation that Rachel Reeves would announce changes to ISAs in July this year as part of the Financial Services growth strategy. However, the chancellor stopped short of announcing specific policy changes but indicated that she was continuing to consider further changes to ISAs to ‘improve returns for savers’.

Recent speculation, based on the Chancellor’s goal of boosting capital flows into companies to boost growth in UK economy, has focussed on potential changes to the ISA rules. Whether there will be new limits placed on the current ISA allowance or the creation of a new UK-only equity investment allowance, it seems likely that using ISAs and other tax-advantaged investments to support the UK economy is still on the Treasury’s agenda for the Budget.

Elsa Littlewood, a private wealth partner at BDO said:

“Against the backdrop of rising interest rates during the year coupled with the ongoing freeze on the personal savings allowance, it’s clear that many people sought out ways to shelter their interest, investment income and capital gains from tax using ISA wrappers.

“There was speculation earlier this year that the chancellor would announce a reduction in the annual cash ISA limit from its current £20,000 but this hasn’t yet happened.

“For many years the cash ISA limit was half the current annual limit – in order to encourage equity investment – so it’s not inconceivable that we will see a return to historic limits. Whether or not this happens at the Autumn Budget remains to be seen.”

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