ISA shake-up risks unwinding a decade of simplification, warns Charles Stanley

From April 2027, the annual cash ISA allowance for savers under 65 will be reduced from £20,000 to £12,000, while the overall ISA allowance remains at £20,000. Older savers will keep the full £20,000 cash entitlement. A proposed 22% charge on interest earned on cash held inside stocks and shares ISAs would align the wrapper with basic-rate tax on savings interest from 2027/28. The aim is to encourage cautious savers to invest in equities. However, anti-circumvention rules intended to police the new regime may reverse simplification from the 2014 reforms and reintroduce a more restrictive, bureaucratic framework. This could particularly affect small business owners and self-employed professionals who rely on ISAs as a long-term savings vehicle.

"From April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for savers under the age of 65, while the overall ISA allowance stays put at £20,000. Older savers will retain the full £20,000 cash entitlement. Alongside that headline measure, the Chancellor is reportedly preparing to introduce a 22% charge on interest earned on cash held inside stocks and shares ISAs, effectively aligning the wrapper with the basic rate of tax on savings interest from the 2027/28 tax year."

"The stated ambition is sound enough: nudge Britain's cautious savers off the sidelines and into the equity markets. After more than two decades reporting on SME finance, I find few people in the City who would quarrel with the principle. But the suite of so-called "anti-circumvention" rules being readied to police the new regime threatens to reverse much of the simplification achieved by George Osborne's 2014 reforms, and to replace it with something distinctly more restrictive and bureaucratic."

"For the small business owners, founders and self-employed professionals who account for a sizeable share of ISA subscriptions, that matters. The ISA wrapper has become the default long-term savings vehicle for those who cannot lean on a generous occupational pension, and any erosion of its clarity is felt acutely in the SME community. Back to a pre-2014 world"

"The proposed 22% charge in many ways revives the pre-2014 framework, when interest on cash inside a stocks and shares ISA attracted a flat 20% levy. That regime was swept away by Osborne's July 2014 reforms, which introduced a single, more flexible ISA allowance and rendered all cash returns, whether earned in a cash or a stocks and shares ISA - fully tax-free. Reintroducing a charge on cash within investment ISAs blurs the lines once again."

Read at Business Matters