Will Reeves Slash Cash ISAs?

Dominic Thomas
Feb 2025 • 2 min read

Will Reeves Slash Cash ISAs?

Hopefully you will know that I am a fan of having cash, we all need it for ‘liquidity’. In plain English – that means having money easily available without needing to sell anything. This is usually best for your emergency fund. This is a number (sum) that helps you to sleep well at night and quite frankly depends on your life stage. A measure of 3, 6 or 12 months of normal spending is helpful plus planned spending projects (not normal spending) over the next three years.

Keeping more than this in cash will likely erode the value of your spending power. You are likely to be going backwards. You might say “backwards, but at least with certainty – compared to investments” well, that is true in the short term but in the long term, whilst nothing is certain, we have yet to see a period when cash beats shares over 10 years or longer.

So, the news that the Chancellor (Rachel Reeves) is contemplating either scrapping or reducing the Cash ISA allowance from £20,000 to £4,000 may be a surprise for some of you. It’s because in theory holding cash doesn’t really serve anyone very well, least of all the economy, but investing in businesses … well that helps create wealth. That’s why she is considering it.

It would seem that this will only start from the new tax year (if at all) and nobody is expecting her to tell us that you can only hold £4,000 in total in Cash ISAs – which would be highly unlikely. Whilst you may find this an unwelcome change, it’s worth remembering that Cash ISAs always had a lower allowance until the 2015/16 tax year when the allowance became £15,240.

As we are still in the 2024/25 tax year data isn’t up to date, honestly in this digital age, I don’t understand why HMRC are so behind. Anyway, interest rates obviously improved over the last couple of years and more people used Cash ISAs, 63% of contributions to ISAs in 2021/22 were into Cash ISAs. People forget the impact of inflation which is still not within range, and Cash ISAs continue to provide a negative return. Quilter did some research and found that £10,000 into a Cash ISA in December 2012 would now be worth £11,955 but when adjusted for inflation that’s really £7,918. In contrast, the same amount invested into a global shares index fund would be worth £33,526 (£22,221 after inflation).

You may have seen my inflation diagram about a first-class stamp, something we can all relate to and perhaps why there are fewer Christmas and Birthday cards being sent.

1985: 17p
1995: 25p
2005: 30p
2015: 63p
2025: £1.65

Your money has to keep pace with inflation. 10 years races by, but holding your hard-earned money in cash that provides a negative return is only good for short-term projects and emergency funds.

The current ISA allowance for 2024/25 is £20,000. The Junior ISA allowance (for those under 18) is £9,000.

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Will Reeves Slash Cash ISAs?Jemima Thomas2025-02-27T11:05:24+00:00

WHO WANTS TO BE AN ‘ISA MILLIONAIRE’?

TODAY’S BLOG

WHO WANTS TO BE AN ‘ISA MILLIONAIRE’?

Tax-free savings accounts have been ‘a thing’ since the introduction of PEPs in 1986.

In 1990 TESSAs were born, with ISAs appearing for the first time in 1999.

So for the last 36 years, it has been possible (and encouraged) to save tax-free up to certain limits.

As you are probably aware the current limit for ISAs is £20,000 per tax year.

There was an article in the news recently saying that HMRC has confirmed that there are now more than 2,000 ‘ISA Millionaires’ in the UK.

The first ever ISA Millionaire is thought to be Lord Lee of Trafford. He hit the £1,000,000 mark in 2003 (sixteen years after investing his first £1). He invested the full amounts allowed each year into stocks and shares accounts (totalling £126,000). All interest and dividends were invested back into his portfolio and the power of compounding is clearly demonstrated here (with growth in the sum of just under £900,000 to hit that magical £1million).

There is no Capital Gains Tax to be paid on it and no Income Tax on the dividends either. It IS what it ‘says on the tin’ … completely tax-free.

It has been calculated that investors putting in their first £1 today could become ISA millionaires in approximately 22 years (depending on returns) – and that’s if the annual allowance remains at £20,000!

So when you hear any of us on the Team at Solomon’s ‘reminding’ and ‘gently nudging’ you about making annual ISA contributions (or better still – setting up a monthly Direct Debit!) – there is a very good reason for this.

We encourage all our clients to save regularly in this way and maximise the allowances whenever possible – and so this is yet another timely reminder from us that if you want to use your allowance for the 21/22 tax year – you must do so very soon – time is running out – and it’s a case of ‘use it or lose it’.

Please let us know urgently if you are intending on making a contribution to your ISA in the 21/22 tax year, so that we can make sure this is processed within the deadlines.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

WHO WANTS TO BE AN ‘ISA MILLIONAIRE’?Jemima Thomas2024-02-08T16:46:07+00:00

Cash ISA latest rates

Latest Cash ISA Rates

There continues to be the expected speculation about inflation and interest rates – how on earth would the media use their time if they didn’t spend so much of it guessing the future? As we know, official inflation rates are falling, yet you and I probably pay more for the things we actually consume, strange but true. Anyway, here are some of the top rates currently available. Please note that this is simply a list, it is not advice. It is important to ensure that your funds are ideally within FSCS compensation limits and not restricted due to shared banking licenses.

Instant Access Accounts

On-line: Melton Mowbray 2.50%
Bank: Virgin Money 2.20%
Building Society: 2.35%

Cash ISA – Variable Rates

On-line: Sainsbury’s Bank 2.80%
Bank: Virgin Money 2.40%
Building Society: Earl Shilton 2.70% (90 day notice)

Cash ISA – Fixed Rates

On-line: Bank of Cyprus UK 3.20% (3 years)
Bank: Halifax 3.60% (5 years)
Building Society: Yorkshire 3.20% (fixed until 31 May 2014)

I have to admit that I’m not overly comfortable with a society that has supermarkets offering banking services, which probably says more about Banks than it does about supermarkets. However many people visit their supermarket more than they visit their bank. I have to admit that I prefer to visit neither and am rather an advocate of on-line service.

New ISA Allowance for 2013/14

You may wish to know that the ISA allowance is now linked to inflation and the September figure for inflation (2.20%) is used for the following tax year. So the 2013/14 ISA allowance will be £240 more. As a result the full 2013/14 allowance will be £11,520 with up to half this into a Cash ISA (£5,760).

Cash ISA latest ratesDominic2025-01-21T15:54:47+00:00