Savers are set to lose a chunk of their tax-free cash individual savings account allowance as the Treasury prepares to take an axe to the £20,000 limit.
Chancellor Rachel Reeves is expected to cave into lobbying by City firms in two weeks’ time and announce a cut to the allowance in her Mansion House speech on July 15, Government officials have said.
Individuals can currently put £20,000 a year into tax-free Isas and can choose to split the limit how they like between cash accounts and investments.
But plans to set a lower limit for cash Isas could be announced later this month, according to the Financial Times.
Some 12.4 million adults hold cash accounts to shield their nest egg from the taxman.
But the Treasury has been lobbied by investment firms to curtail the cash Isa tax break and prioritise investments, which will in turn boost their coffers.
Trading platform IG has called for the cash wrapper to be ‘scrapped altogether.’
Chancellor Rachel Reeves is expected to cave into lobbying by City firms in two weeks’ time and announce a cut to the allowance in her Mansion House speech on July 15
Individuals can currently put £20,000 a year into tax-free Isas and can choose to split the limit how they like between cash accounts and investments. Picture: Stock image
In May Ms Reeves confirmed the overall £20,000 limit would remain in place.
But she stopped short of stating the amount that can be kept in cash will also stay at this level. The Treasury repeated this when approached for comment.
Ms Reeves said: ‘It’s really important that we support people to save, to achieve their aspirations.
‘I’m not going to reduce the £20,000 Isa limit but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.’
The Government wants to reform the Isa system to encourage more people to plough money into the stock market to bolster the UK’s lacklustre retail investing culture.
It is hoped the move will spark more investment into London-listed stocks, which will support the Government’s growth agenda.
Insiders say the Treasury previously discussed cutting the cash Isa allowance to as low as £5,000 but it is understood they are still considering the threshold.
The Building Societies Association warned earlier this year that savers rely on the tax wrappers to achieve their savings goals but also claimed any curtailment could lead to a mortgage shortage and a hike to borrowing costs.
In response to the Mail’s Hands Off Our Cash Isa campaign, many readers said they shouldn’t be penalised for preferring safe cash savings over risky stock holdings.
The Exchequer will rake more money into its coffers if savers breach their Personal Savings Allowance rather than investing.