A flagship change was meant to push people toward investing, but one tiny detail threatened to punish the cautious
Rachel Reeves ISA changes have been delayed after a major flaw was revealed (Image: Getty)
The Treasury is postponing its overhaul of individual savings accounts (ISAs) after a major flaw in Rachel Reeves’ flagship policy was discovered. The Chancellor had previously proposed a drastic reduction in the annual cash ISA limit for individuals under 65, slashing it from £20,000 to just £2,000.
While the contribution threshold for stocks and shares ISAs was intended to remain at current levels, the plan included a new 22% tax on any interest generated from cash balances held within those investment accounts. However, plans screeched to a halt after it was revealed that it would have allowed savers to dodge Ms Reeves’s crackdown on cash.
Sir Mel Stride has warned the confusion about rules risked ‘leaving people in the dark’ (Image: Getty)
Without the discovery by The Telegraph, savers could have avoided the levy by investing a minimal amount (like 1p) into a stocks and shares ISA and holding the bulk of their savings in cash-mimicking vehicles, such as money market funds, which offer low-risk, cash-like returns. Although the ISA reforms were intended to encourage investment, experts warned that the complexity introduced by the new “anti-circumvention” rules could ultimately backfire.
Anyone wishing to open an ISA must be at least 18-years-old. They are a specific type of savings or investment account available in the UK that protects your interest and investment returns from income tax and capital gains tax. Users can currently save or invest up to £20,000 a year, and unlike regular savings accounts, the money remains tax-free.
However, industry figures have warned that the complexity will create both administrative issues and discourage people from opening ISAs, rather than building a “nation of investors”.
Industry figures have warned the change will deter people from opening ISAs (Image: Getty)
Sir Mel Stride, the shadow chancellor, has also warned that the confusion about rules risked “leaving people in the dark.”
Tom Selby, AJ Bell’s director of public policy, said: “We can only hope that any delay is because officials have recognised creating new tax charges for Isa investors and layering on burdensome complexity is unnecessary and precisely the wrong way to foster a retail investing culture in the UK.”
The move risks undoing the reforms made in 2014 to simplify the ISA system, which sparked a 45% increase in ISA contributions in its first year, it is thought.
A Treasury spokesman said: “The vast majority of savers will continue to pay no tax on their savings and the Treasury and HMRC are working at pace with industry on the detailed rules and will update on next steps in due course.”
