Savers are at risk of making mistakes if they act upon rumoured reforms to ISAs.
The future of the ISA as it currently exists has been thrown into doubt by months of speculation on potential changes the Government could make in order to accomplish a range of supposed goals.
As with the budget, the issue here is that media speculation is rife, but cutting through those rumours to the truth of what future changes look like is fraught with potential pitfalls.
So, what are the rumours, and what should we do about them?
ISA reform
The chief reform being touted is that the ISA allowance for cash is too high. Chancellor Rachel Reeves is reportedly looking to cut the annual cash allowance to just £4,000. This would match other products such as the Lifetime ISA or LISA.
This is on the back of lobbying by big investment platforms in the City of London who are looking to engage more savers in investing. According to the Government’s most recent figures, around 40% of all ISA savings – around £290 billion – is in cash accounts.
But further rumours suggested that the Government was also looking to slash the entire ISA allowance of £20,000, which would include cutting the allowance for investments to a lower level. This was dismissed after lobbying from the banking sector, which relies on deposits to enable a portion of its mortgage lending activity.
That being said, the Government still intends to push ahead with a consultation on ISA reform and a potential cut to the cash element is still on the table. What this entails is again subject to rumours.
Should I do anything?
The most likely outcome is we’ll get an announcement in the Autumn Budget, which is typically pencilled in for late October or early November. Until then, we must work on the assumption that it is business as usual for ISAs.
The crux of the issue here is that rumours of change are destabilising. It can cause undue concern, which leads to rash decisions. But it is critical not to make a change to a portfolio that could have profound tax or performance consequences without thoroughly considering the best approach.
While rule changes are a common occurrence when it comes to long-term financial planning, there is always a solution that ensures the best outcome possible thanks to – or in spite of – changes any given Government might enact.
It is essential to speak to a financial planner before making any decisions that could affect the long-term outcomes for a financial plan.
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