ISA numbers rise but will chancellor rein in ISA benefits at the Budget?

New figures released today show that the number of people opening cash ISAs jumped by 10% in 22-23 as savers affected by frozen tax thresholds and rising interest rates sought to shelter their savings from income tax.

In total, 7.9m new cash ISA accounts were opened in 22-23, according to provisional figures published today, while the number of stocks and shares ISAs declined slightly by 3.2% to 3.8m.

Overall, 12.5m Adult ISA accounts were subscribed to in 22-23, up from 11.8m in 21-22.

By value, around £72.2bn was placed into Adult ISAs during the 22-23 year, an increase of £5.2bn over previous fiscal year.

There are four types of Individual Savings Accounts (ISA) - cash ISA, stocks and shares ISA, innovative finance ISA and the Lifetime ISA. They allow savers to shelter their money from any income tax on interest, or any income or capital gains tax from investments. Every tax year you can save up to £20,000 in one ISA account or split the allowance across multiple accounts. However, you can only pay into one Lifetime ISA in a tax year, with a maximum you can pay in of £4,000 as LISA savings are matched by a 25% contribution from the Government. There is also a Junior ISA, the limit for which is only £9,000.

Following Sir Keir Starmer’s warning of a ‘painful’ Budget ahead with ‘those with the broadest shoulders bearing the heavier burden’, the chancellor could feasibly seek to reduce some ISA benefits to reduce costs, warns BDO.

Commenting on the figures, Elsa Littlewood, private wealth tax partner at BDO said:

“ISAs are designed to encourage saving, and the latest figures show that a growing number of savers are taking advantage of the tax sheltering opportunities offered by ISAs.

“However, with the latest available figures showing that ISAs are costing the Exchequer almost £5bn a year in tax relief – and with recent warnings about a ‘painful’ Budget ahead – cutting this cost by reining in ISA benefits for wealthy investors might be seen as an easy way to help balance the books.

“Recent reports – although not yet officially confirmed by the Government – suggest the previous Government’s plans for a UK ISA have been shelved. This could feasibly be presented under the guise of ‘simplification’, or as part of a wider ranging reform to the ISA regime.

“While savers may be hoping that the originally proposed additional £5,000 per year allowance for the UK ISA would be added to the current £20,000 annual ISA limit, there could be a sting in the tail.

“It’s not impossible that the chancellor could seek to impose a lifetime cap on ISA saving – perhaps set at around £500K. If this were to happen, we would hope that the limit would be indexed to rise in line with inflation.

“We could also see a reduction in the annual allowance available for cash ISAs, but an increase in the annual allowance for stocks and shares ISAs in an effort to support economic growth.

We may also see changes to the rules on the usage of Lifetime ISA funds. Currently, these funds can be used by first time buyers for properties worth £450,000 or less. With rising property prices, this can limit options for first-time buyers, particularly in London and the South East, and the penalties can be quite punitive for those who find themselves in this position.

ENDS

Notes to editors

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

The organisations we work with are Britain’s economic engine; entrepreneurially-spirited, high-growth businesses that fuel the economy.

We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.

BDO LLP

BDO LLP operates in 17 offices across the UK, employing 8,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

The organisations we work with are Britain’s economic engine; entrepreneurially-spirited, high-growth businesses that fuel the economy.

We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.

BDO's global network

The BDO global network provides business advisory services in 166 countries and territories, with more than 115,000 people working out of 1,776 offices worldwide. It has revenues of US$14bn.

Contacts

Frank Shepherd
frank.x.shepherd@bdo.co.uk 
07812 463601