Savers tell Reeves that even if the cash limit is lowered, we will reject stocks and shares ISAs

If Chancellor Rachel Reeves follows through on her rumored plans to lower the cash ISA limit in order to encourage British investment in UK Plc, most savers have stated that they would still not move to stocks and shares

According to recent research, two-thirds of cash ISA savers say they would not switch to a stocks and shares ISA even if the limit was lowered, suggesting that cash is still king among UK savers.

For months, there has been conjecture that Chancellor Rachel Reeves will reduce the maximum amount of money that savers can invest in an ISA from £20,000 to possibly £10,000 or even £5,000. Savings in a cash ISA would remain unchanged.

If the Autumn Budget cuts the cash ISA limit, the main goal is to encourage Britain to invest more in British businesses through stocks and shares held in an ISA, where gains on cash and investments grow tax-free.

However, a study conducted by Paragon Bank among 1,400 cash ISA savers, four-fifths of whom were 65 or older, revealed that most would not invest in stocks and shares given a reduction in cash limits. Instead, they would move to standard savings accounts, which might result in an increase in their income tax liability.

Sixty-two percent stated that if the cash ISA limit were lowered, they would not think about transferring their funds to a stocks and shares ISA. Rather, 57% would choose a standard savings account, which might subject them to taxes on interest received.

Premium bonds (16 percent), stocks and shares ISAs (18 percent), spending the money (16 percent), and giving it to friends or family (13 percent) were additional options.

When it came to transferring savings into an ISA for stocks and shares, two-thirds (67 percent) stated that the risk of losing money was their biggest concern, followed by stock market volatility (65 percent). Thirty-seven percent were concerned about fees and charges, and one-fifth cited ignorance.

Despite the possible tax ramifications, the great majority of cash ISA savers are hesitant to expose their money to the risks associated with stocks, according to Andrew Wright, head of savings at Paragon Bank.

In the end, it shows that savers will probably pay more tax on their savings interest if the cash ISA threshold is lowered in the next budget. A "

ISA tax grab with cash?

Additionally, savers are skeptical of the reasons for the reported move. When asked about the possibility of lowering the cash ISA limit in March, Reeves stated that her goals were to "get the balance right between cash and equities to earn better returns for savers" and "boost the culture of retail investment" in Britain.

However, according to the Paragon Bank survey, almost three-quarters (72%) of savers think that any reduction in the cash ISA would actually be intended to boost tax revenue from savings. Just over half (54%) think it's meant to boost equity investment.

There is no personal savings allowance for additional rate taxpayers, and basic rate income taxpayers can earn up to £1,000 in interest annually before being taxed. For higher rate taxpayers, this amount drops to £500.

According to the survey, many cash ISA savers have stated that they normally invest in a balanced portfolio of investments in other asset classes, so they don't really need government policies to encourage them to do so.

A fifth (21%) invest through investment funds or trusts, while 27% invest directly in company shares and half also hold cash in Premium Bonds. Other investments included government or corporate bonds (7%), real estate (6%), and non-traditional assets like wine or artwork (2%).

According to 93% of respondents, the main factor in selecting a cash ISA is still its tax-free interest. When asked about their savings objectives, slightly more than half (51%) stated they save for general needs, more than a third (38%) for financial security, a quarter (28%) for retirement, and slightly more than one in ten (15%) for emergencies.

The poll also revealed strong support for keeping or raising the current 20,000 cash ISA annual allowance, with 57% of savers saying the cap is reasonable and another 39% advocating for an increase. Just 1% of respondents thought the threshold should be lowered.

Nearly two-thirds of those surveyed claimed to have saved between £15,000 and £20,000 a year, which is nearly equal to the current maximum cash ISA allowance.

The most popular kind of ISA is a cash one. According to government statistics, cash ISAs accounted for 66% of all ISA contributions in the 2023 - 2024 tax year, increasing total cash ISA holdings to 360 billion.