Analysts are warning that investors in the UK face a “harsh reality” as the ISA allowance remains frozen until at least April 2030.
This was confirmed by Chancellor Rachel Reeves in the 2024 Autumn Budget last October with many savers hoping for relief in next week’s Spring Statement.
Britons are missing out on a £56k savings boost due to the freeze on ISA allowances
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The Annual ISA allowance limits remain fixed at £20,000 for Cash ISAs and Stocks and Shares ISAs, £4,000 for Lifetime ISAs, and £9,000 for Junior ISAs.
These thresholds were expected to rise with inflation but have instead remained static since 2017.
Had the £20,000 ISA limit tracked the Consumer Prices Index (CPI), it would be worth approximately £26,880 today.
Analysts from Moneyfarm are citing that the gap will only widen by 2030, when the equivalent value of the 2017 allowance would be approximately £30,421, assuming an annual inflation rate of 2.5 per cent.
The discrepancy between inflation and the ISA allowance growth has become increasingly pronounced with current inflation at three per cent.
Older households could be hit with a tax raid
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According to Moneyfarm, savers potentially missing out on more than £56,000 in tax-free savings over the 13-year period.
To put this in perspective, that amount could serve as a house deposit for first-time buyers. Alternatively, it could purchase a new Ford Puma or fund a family holiday to Disneyland Paris.
Chris Rudden, the head of Investment Consultants UK at Moneyfarm, broke down the implications of this “stealth tax” policy.
He explained: “The Government’s decision to freeze the annual ISA allowance until April 2030 means it will not keep pace with inflation, currently at three per cent, causing its real value to erode over time.”
This stagnation is compounded by unchanged personal savings allowances of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
As wages rise while income tax thresholds remain static, more individuals are pushed into higher tax brackets under fiscal drag.
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Rudden emphasises that “encouraging savers to invest rather than hold cash is crucial” in bolstering peoples’ finances.
He further suggests that “a future increase in the ISA threshold would help ensuing are UK savers continue to take advantage of this valuable tax-free vehicle.”
Even a modest adjustment to the allowance could provide significant relief for investors, according to Moneyfarm.
Chancellor Rachel Reeves is set to announce any further changes to UK policy next week on March 26.
