The Chancellor is rumoured to be considering a curb to the cash Isa allowance of £12,000.
The Treasury has been floating the idea of cutting the tax-free savings allowance down from the current £20,000 in the Budget on 26 November, with various new limits being considered.
Rachel Reeves is now looking at a £12,000 cap instead of the previously reported £10,000 according to the Financial Times.
However, cutting the cash Isa allowance to £10,000 has not been ruled out, according to sources familiar with the plans.
The change comes after building societies raised concerns that cutting the cash Isa allowance would restrict their ability to lend mortgages, as they wouldn’t receive as much money from savers.
Building societies warned that they used cash Isas to fund mortgages and said that restricting inflows to cash Isas would potentially drive up the cost of offering mortgages, which would be passed on to homeowners in the form of higher rates.
Change: The Chancellor is mulling cutting the cash Isa limit to £12,000 instead of £10,000
Also under consideration is a mandatory allocation to UK equities in a stocks and shares Isa. It is thought this could make up £5,000 of the current £20,000 stocks and shares Isa allowance.
This latest development in what is thought to be the biggest Isa overhaul in 25 years comes after months of speculation.
It is part of a plan to encourage savers to divert billions of pounds of cash savings into the stock market and boost Britain’s flagging economy
The Chancellor is also looking to plug a hole in the nation’s finances which could be as much as £30billion in her Budget this month.
It is estimated that savers hold around £300billion worth of savings in cash Isas. They are by far the most popular Isa product, followed by stocks and shares Isas.
A raid on cash Isas would also boost the £6billion the Treasury rakes in from tax on savings interest each year.
The Chancellor was widely expected to announce plans to slash the £20,000 tax-free allowance in her Mansion House speech in July.
But these plans were put on hold after a furious backlash from savers, building societies and the Daily Mail and This is Money’s Hands off Cash Isas campaign.
Last month, MPs warned that cutting the cash Isa allowance was unlikely to incentivise people to instead invest cash in stocks and shares after it was revealed the Chancellor was looking to half the cash Isa allowance to £10,000.
Research from the Financial Conduct Authority shows around 7million people hold more than £10,000 of investible assets in cash.
Any changes to the cash Isa would not affect existing pots, only Isa future contributions.
SAVE MONEY, MAKE MONEY
Sipp cashback
Sipp cashback
£200 when you deposit or transfer £15,000
4.53% cash Isa
4.53% cash Isa
Trading 212: 0.68% fixed 12-month bonus
£20 off motoring
£20 off motoring
This is Money Motoring Club voucher
Free shares bundle
Free shares bundle
Get free UK shares worth up to £200
4.45% Isa with bonus
4.45% Isa with bonus
Now with no penalty for withdrawals
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. Terms and conditions apply on all offers.
