ISA update – what is likely to change in Labour’s reforms?

ISA reform is coming. Earlier this year, Chancellor Rachel Reeves signalled that she was open to reviewing the UK’s current ISA regime, with some speculation suggesting that this may involve streamlining the current range of ISA products, or even lowering the annual allowance.

In July, the government opened up a consultation into ISA reform, with further details expected to be announced at Reeves’ Mansion House speech on 15 July. However, on the day of the speech, no references to ISA reform were included.

This lack of a clear ISA policy has kept savers and investors in the dark, wondering how their ISA allowance could change in the next financial year.

So what is likely to change?

As of now, we really don’t know very much at all. In her Spring Statement, Reeves said that her goal was to encourage more UK taxpayers to invest rather than save, in an effort to boost the British economy. The government later released a statement saying that it is “looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.”[1]

This suggests that any ISA reformations will focus on boosting the popularity and accessibility of investment ISAs such as the Stocks and Shares ISA and the Innovative Finance ISA (IFISA). One way that the government may do this is by making the Cash ISA less attractive.

Prior to the Mansion House speech, it was rumoured that Reeves planned to slash the annual Cash ISA allowance from £20,000 to £5,000, while keeping the £20,000 limit for other investor-focused ISAs. This could encourage more people to look beyond Cash ISA options when choosing where to invest their annual ISA allowance.

How can you maximise your ISA allowance now?

In her Spring Budget, Reeves reassured savers and investors that ISA reform would not be implemented in the current financial year. That means that until 5 April 2026, every UK taxpayer can make full use of their £20,000 annual ISA allowance as usual. This £20,000 can be spread across Cash ISAs, IFISAs, Stocks and Shares ISAs and Lifetime ISAs (although there is an annual limit of £4,000 on this type of ISA).

Furthermore, all existing ISA balances can be transferred, either to different account providers or from one type of ISA to another.

With no guarantees that this structure will remain in place after April 2026, savers and investors should take action now to ensure that they are making the most of their current allowance.

This might involve putting aside extra money for ISA savings and investments, while the annual allowance is still at a high.

Savers might also take this time to research alternatives to Cash ISAs. For example, IFISAs can also offer fixed returns by matching investors with borrowers who pay an agreed interest rate on a daily, monthly, quarterly or annual basis, for the duration of the loan. No two IFISA providers are the same, so it is important to conduct thorough due diligence before placing any money with a provider. It is also important to understand the risk associated with investment ISAs, namely that there is a chance that investor capital could be lost due to an unperforming loan or poor stock performance.

Whatever the future holds for the ISA, there are plenty of options available to UK taxpayers who want to grow their savings and investment portfolios and take advantage of tax-free returns – at least in the current financial year.

[1] https://assets.publishing.service.gov.uk/media/67e3ec2df356a2dc0e39b488/E03274109_HMT_Spring_Statement_Mar_25_Web_Accessible_.pdf