Chancellor Rachel Reeves is expected to cut the amount of money that can be saved tax-free to £12,000 in the Autumn Budget.
This is just the latest in reported proposals that have been trickling out in the last few days and weeks.
The Autumn Budget drops on Wednesday, November 26, and one area that is said to be about to change is cash Individual Savings Accounts (ISAs).
It’s believed that the Chancellor will announce that the annual tax-free allowance in cash ISAs will be reduced to £12,000, down from £20,000.
However, the government still wants to encourage people to invest in stocks and shares.
Here’s a closer look at what a Cash ISA is, and what the changes could mean.
Milkshakes and lattes expected to be hit by Government sugar tax
What are Cash ISAs?
A Cash ISA is a savings or investment product that offers a way to invest money without needing to pay tax on the interest you earn, up to a certain point.
They are offered by many major banks and investment companies, available to those aged over 18, and living in the UK or a member of the armed forces or a Crown servant who works abroad.
There is currently a £20,000 annual allowance that can be used either in one ccount or spread across multiple ISA products.
That means that you can have up to £20,000 saved in either one ISA or multiple (e.g. £15,000 in one, £5,000 in another).
Any returns you make on your money are tax-free, with the option to add more in when the new tax year begins.
READ MORE: Autumn Budget: Timeline of key economic data before November 26
What changes are on the way for Cash ISAs?
The expected change seemingly only applies to Cash ISAs, bringing the tax-free allowance down to £12,000.
Users would still be able to deposit more than that if they chose, but any returns on the amount above that would be subject to tax.
The fact that the change is seemingly only attached to Cash ISAs could mean that Stocks and Shares ISAs would have a different allowance.
At the moment, everyone has the same £20,000 allowance across all ISA products.
READ MORE: Cash Isa limit cut may not encourage people to invest, finance expert says
Who will the changes affect?
If the changes come through, the latest government figures show that around 15 million Adult ISA accounts were subscribed to between 2023 and 2024.
The average income of ISA holders sat between £20,000 and £29,999. In terms of the amount of people who maxed out the £20,000 allowance, only 22.7% of the total subscribers saved at the maximum between 2022 and 2023.
The highest proportion of savers, sitting at 41.9%, saved much less, putting in between £1 and £2,499.
The South East and South West regions have among the highest proportion of adults holding ISAs at 43.4% and 43.7% each, with London coming in with one of the lowest proportions in the country at 37%.
