HM Revenue & Customs’ latest statistics on the cost of tax reliefs will raise suspicion over the Chancellor’s motive for cutting the cash ISA allowance, says Evelyn Partners.
The figures estimate that ISAs are set to save UK savers an estimated £9.65 billion in income tax and capital gains tax in the current tax year. While this is marginally down on the previous year, reflecting lower interest rates, it is double the amount of tax relief achieved five years ago.
Jason Hollands, managing director of Bestinvest, said the stats provide a “fascinating insight” into what may be driving Treasury thinking around ISAs.
In November, the Chancellor confirmed a highly-anticipated cut in the cash ISA allowance from £20,000 to £12,000 for under-65s to come into effect in April 2027.
Hollands said: “The Chancellor has sought to justify the cut to cash ISAs as entirely driven by a desire to encourage more savers to become investors and enjoy higher potential returns and – notably – this impact of the cut to the cash ISA allowance on future tax receipts was not costed in the Budget projections.
“However, the insights from these tax relief statistics will only raise suspicions that the real motivation to cut the cash ISA allowance is to curtail the ‘cost’ to the Treasury of ISA tax reliefs.”
With a multi-year freeze in place on the £20,000 ISA allowance since 2017/18, Hollands says the ISA allowance has already diminished in real terms for savers and investors as a result of inflation.
However, with the UK tax burden at a record post-war high, reduced annual dividend and capital gains exemptions put in place by the last government, a higher rate of CGT introduced in 2024 and now increased tax rates coming into effect for both savings interest and dividend income, Hollands says it has “never been more important to make as much use of ISA allowances as possible” for those in a position to do so.
“With the end of tax year deadline getting ever closer, people would be wise to act to utilise their current year ISA allowance while they can,” he added.
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