British Finance Minister Rachel Reeves has announced a reduction in the annual tax-free investment limit for cash Individual Savings Accounts (ISAs), effective from 2027. The move aims to encourage greater investment in the UK stock market, with the goal of stimulating economic growth. Reeves stated in her budget speech that the annual tax-free limit for cash investments in an ISA will decrease from £20,000 to £12,000. Individuals over 65 years of age will maintain their full cash allowance.
Currently, Britons can invest up to £20,000 annually across various ISA types, including cash and stocks and shares products, without incurring income or capital gains tax. The Quoted Companies Alliance, a trade body representing small and mid-cap companies, had previously informed lawmakers that approximately £300 billion is held in cash ISAs, which often provide relatively low returns.
Shares in stock trading platforms experienced gains following the announcement. AJ Bell shares rose by 2.6%, while IG Group saw a more substantial increase of 10.3%. Some experts have expressed doubt about the changes leading to a significant shift towards investment, citing a cultural preference for lower-risk options. Others suggest savers may seek better returns in overseas markets.
Industry figures have also weighed in on the reform. Sarah Coles, head of personal finance at Hargreaves Lansdown, highlighted the potential for significant growth through investment. Nicholas Hyett, investment manager at Wealth Club, said reform made sense, noting that those consistently maxing out their cash ISA allowance should consider investing in the stock market.
