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ISA: Call to restore real value of allowance and scrap LISA cap

ISA British Chancellor of the Exchequer Jeremy Hunt gestures as he speaks at Britain's Conservative Party's annual conference in Manchester, Britain, October 2, 2023. REUTERS/Hannah McKay
Chancellor Jeremy Hunt is said to be considering reforming the ISA system. Photo: Hannah McKay/Reuters (Hannah Mckay / reuters)

Existing ISA rules could be relaxed from April next year to bring better rates for UK savers but campaigners are calling on the chancellor to bring back the “real value” of the ISA allowance.

Chancellor Jeremy Hunt is said to be considering reforming the ISA system to encourage providers to offer more competitive rates and help consumers make more in tax-free interest.

However, the chancellor is not expected to increase the £20,000 annual allowance or make changes to the lifetime ISA (LISA). Campaigners have been calling for the exit penalty to be scrapped, and for the £450,000 property limit to be increased.

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“Tax-free ISAs are more important than ever before for investors because of the steep cuts the chancellor has already announced to both the annual dividend allowance and capital gains exemptions, both of which are set to halve again next April,” Jason Hollands, managing director of Bestinvest, said.

“The adult ISA allowance, however, has been frozen at £20,000 since the 2017/18 tax-year. We would like to see the real value of the allowance restored with an increase to at least £25,760 to adjust for the effect of CPI inflation since April 2017.”

According to the Telegraph, Hunt plans to announce a consultation on relaxing ISA rules.

It could mean that as early as April 2024 savers would be able to pay into multiple ISAs in the same year and move money without losing the tax-free allowance.

AJ Bell says the rules relaxation could pave the way for a “radical reform” that would give savers a boost.

“It is ridiculous investors are currently faced with a choice of six types of ISA when deciding where to invest for the future, with different rules and allowances further clouding the picture,” Tom Selby, AJ Bell head of retirement policy, said.

Read more: Lifetime ISAs: Martin Lewis issues warning about LISA

“Our research suggests this unnecessary complexity acts as a barrier to people saving and investing for the future, hampering their own financial prospects and those of the companies they might otherwise invest in,” he added.

UK adults can save or invest up to £20,000 into an ISA per tax year, which can be split between cash and other investments. No tax is payable on savings interest, dividends or capital gains, and withdrawals are not subject to income tax.

Treasury has said that it is receptive to ideas of how it can make ISAs more attractive to encourage people to develop a savings habit and to invest in a way that works for them.

The chancellor will deliver the Autumn Statement in the House of Commons on Wednesday 22 November 2023.

Watch: Jeremy Hunt says families should be optimistic despite stagnating economy

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