Britain’s biggest building society has issued a stark warning over potential cuts to tax breaks on cash ISAs, cautioning that such a move could reduce availability for first-time buyers.
The alert comes amid mounting speculation that Chancellor Rachel Reeves is considering slashing ISA tax relief in a bid to raise revenue.
City firms have been lobbying the government to scale back or scrap tax-free cash ISAs altogether, pushing savers towards riskier stock market investments. The Treasury has refused to rule out changes, fueling concerns that millions of Britons could see their savings hit.
Nationwide building society has joined a number of financial institutions warning against tampering with ISAs. Tom Riley, director of retail products at Nationwide, stressed: “Cash ISAs not only help ordinary people save efficiently but enable us to fund our first-time buyer lending.”
His warning was echoed by Andy Moody of Leeds Building Society, who cautioned that changing the ISA rules could have a “significant detrimental impact on lending.” With first-time buyers already struggling to save for a deposit, any reduction in available funds could make home ownership even more difficult.
Experts fear a tax raid on ISAs could be imminent (Image: Getty)
The Labour tax grab
With a cash-strapped Treasury seeking new sources of funding, experts fear a tax raid on ISAs could be imminent. Currently, over 18 million people hold cash ISAs with nearly £300bn saved tax-free. The estimated tax relief on these products costs the government £6.7bn annually—a tempting target for a Chancellor looking to balance the books.
Emma Reynolds, the economic secretary to the Treasury, has questioned why “hundreds of billions of pounds” sit in cash ISAs, arguing that Britain needs to “drive an investment culture.” However, critics warn that gutting ISAs would disproportionately affect pensioners and cautious savers who rely on their tax-free status as a financial safety net.
Possible ISA Reforms Under Labour
Among the changes reportedly being considered are:
Reducing the annual ISA limit: The current £20,000 allowance could be slashed, significantly reducing long-term tax-free savings potential.
Imposing a lifetime cap: Labour has previously suggested a £500,000 lifetime limit, while some proposals call for a drastically lower £100,000 cap.
Scrapping the Lifetime ISA (LISA): Designed to help young people save for a home or retirement, the LISA has faced criticism, and a government review could signal its demise.
Taxing Stocks & Shares ISAs: While seen as a driver of economic growth, these could also face restrictions, such as only allowing tax-free returns if invested in British companies.
Backlash mounts
The Building Societies Association (BSA) has written to Rachel Reeves, urging her to protect cash ISAs. Robin Fieth, CEO of the BSA, stated: “We strongly disagree with calls from City firms to restrict cash ISAs. These accounts are a vital tool for savers and a crucial funding source for lending.”
With the Spring Statement looming, pressure is mounting on the Chancellor to clarify her position. As the Treasury remains tight-lipped, savers and lenders alike fear an impending tax grab that could have far-reaching consequences for the housing market and financial stability of millions of Britons.