Isa Reforms Could Force Savers to Back British Shares

Savers across the UK may be poised for a significant shake-up in how their Isa allowances work as the Chancellor prepares to encourage investment in British shares. Sources close to the Treasury suggest the government is considering measures that would significantly restrict the amount individuals can deposit in cash Isas, along with a possible requirement for a minimum investment in UK equities.

Currently, all Isa holders enjoy a £20,000 annual allowance, which can be split between cash, stocks and shares or a mix of both. Any returns, whether interest, dividends or capital gains, remain free from tax. Recent proposals have floated slashing the cash Isa deposit limit to just £10,000 a year, a move which has sparked resistance from both savers and the building societies that rely on these accounts for funding.

Industry experts caution that reducing the cash Isa allowance could cloud an already complex savings landscape. The British public has a strong affinity for cash Isas, largely due to their simplicity and the security they provide. Making the rules more complicated, or penalising those who prefer cash over shares, risks alienating millions of savers. Research by AJ Bell shows that over 70 per cent of individuals with more than £5,000 set aside in cash have never considered moving into a stocks and shares Isa. Should the limit be cut and movement between cash and investment Isas become restricted, such changes could further deter these risk-averse savers from seeking higher returns in the markets.

The revival of plans for a so-called British Isa has also generated considerable attention. Previously shelved by Labour following their election victory, the idea would see Isa investors required to allocate a proportion of their allowance to UK shares specifically. Market practitioners argue that such a rule would be cumbersome to enforce and create perverse incentives, possibly forcing investors to increase their exposure to underperforming sectors simply to comply with fresh regulations.

The Lifetime Isa, meanwhile, has attracted criticism over its withdrawal rules and unaltered property price cap. At present, penalties for unauthorised withdrawals can exceed the government bonus and dip into savers’ own funds. With property prices rising sharply, the static £450,000 cap on eligible first homes now risks excluding buyers in large parts of the country, especially in urban centres where average prices have climbed nearer £590,000 since 2017.

Rumours swirl of an added twist—namely, a cap on the total Isa holdings someone can amass during their lifetime. Proposals have ranged from a £500,000 per-person ceiling to even lower limits. Financial advisers warn that policing a lifetime cap would be a logistical nightmare, particularly with existing investments grown over the last quarter-century.

As stakeholders await the Chancellor’s autumn budget, one theme is clear: the government’s resolve to channel more British savings into homegrown companies is set to make Isas more complex and, potentially, less attractive for the millions who favour the reliable simplicity of cash.