ISA Allowance Rumour to Increase to £30,000 No Big Deal

After the IHT tax reduction or abolition rumours ‘flying around’ this week, see IHT Cuts

It is now alleged that the Chancellor, Jeremy Hunt is exploring options to increase the yearly ISA allowance from £20,000 pa to £30,000 pa.

ISA allowances were increased to £20,000 in April 2017, some 6.5 years ago and in that time compounded inflation has gone up 27%.  If ISA allowances had kept pace with inflation, they should now be at £25,400.  IN addition, all allowances are currently frozen until 2028 so, with no action, more of our investments will be subject to taxation. 

In addition, given that capital gains tax allowances have fallen from £12,300 last year to £6,000 this year and £3,000 next year, any increase in the ISA allowance to £30,000 is merely giving back what has been taken away.  Nevertheless, it is still a vote chaser.

How Much Tax Would This Save You?

We have done some quick calculations assuming a £20,000 ISA payment this year and if the ISA allowance increases to £30,000 in April 2024 but then remains the same for another 9 and 19 years.

With investment growth at 4% pa (net of charges) and the Capital Gains Tax Allowance of £3,000 pa (from April 2024) only increasing by 2.5% pa inflation from 2028 (allowances are frozen until then), we estimate a capital gains tax saving of £4,102 if the whole ISA fund was cashed in after 10 years for a Higher Rate Taxpayer and a capital gains tax saving of £19,556 if all was cashed in after 20 years for a Higher Rate Tax Payer.

Comment

Remember, this is not a give away, this is merely giving back what has been taken away and perhaps an effort to get people to save rather than spend to reduce inflation plus another vote sweetener ahead of any General Election next year.