UK May Halve Tax-Free Cash Savings Limit in November Budget: The Telegraph

The UK government is likely to cut in half the amount of money people can hold in tax-free savings accounts as part of next month’s budget, The Telegraph reported on Saturday, citing a government minister who said there was a need to “rebalance” tax incentives.

Under current rules, Britons can save up to £20,000 ($26,842) each year in Individual Savings Accounts (ISAs) — which can hold cash, shares, bonds, or investment funds — without paying tax on interest, dividends, or capital gains.

About one in three people in the UK has an ISA, with total savings amounting to around £726 billion. Most ISAs are used primarily for cash savings, and few savers make full use of the £20,000 annual allowance.

The Labour government said in March that it wanted to boost share ownership and support companies listed in London. Reducing tax benefits for cash savings is one of the options under consideration to achieve that goal.

In a report published on Saturday, Parliament’s Treasury Committee urged the government not to cut the cash ISA limit, warning that such a move would not necessarily encourage greater share ownership and could instead reduce the availability of mortgage lending.

Building societies often use funds raised through cash ISAs to provide mortgages for homebuyers.

The committee also noted that a lack of financial education — rather than insufficient tax incentives — was the main reason some Britons chose not to invest in shares outside their workplace pension schemes.

According to The Telegraph, the plan to reduce the amount of cash that can be held in ISAs aims to push savers toward investing in shares if they want to take full advantage of the tax-free allowance.

Financial Services Minister Lucy Rigby was quoted as saying: “We’re looking at the right balance between cash and stocks within ISAs. The key thing is ensuring people are better off — and one way to do that is by building a shareholding democracy in this country.”

The report added that no final decision has been made, but halving the annual cash ISA limit to £10,000 — or setting it slightly higher — remains the most likely outcome.