11 hours Ago By Nicholas Dawson
As Labour considers reforming ISAs, an expert has urged for the ISA allowance to be doubled to £40,000 to encourage more investing. Treasury minister Emma Reynolds told the Treasury Committee this week that the Government is "looking at ISA reform" after there were reports Chancellor Rachel Reeves could introduce a new £4,000 cap on cash ISAs, to encourage more investing. You can currently invest up to £20,000 into ISAs, and this can be split between different types of ISA, including cash, stocks and shares and innovative finance.
Rezaah Ahmad, CEO of investment platform WiseAlpha , is calling for the allowance to be significantly increased. He said: "To meaningfully improve the UK’s savings landscape, Labour should consider raising the annual ISA allowance to £40,000. "This increase would better reflect both inflationary changes and a desire to incentivise greater investment ISA usage since the current £20,000 limit was introduced in 2017 and the growing need for individuals to take greater control of their long-term financial futures and generate wealth above inflation.
"An allowance of £40,000 would provide far more flexibility, enabling savers to effectively build and diversify their portfolios across cash, stocks, shares, bonds, and alternative assets without being constrained by outdated thresholds." He warned bringing in a £4,000 cap could needlessly penalise people who prefer to put their funds in cash as they prefer a low-risk way to grow their cash. WiseAlpha has launched the UK's first High-Yield Corporate Bond Innovative Finance ISA (IF ISA) with coupons for some of the bonds at 12%.
Mr Ahmad said that investments can offer better returns than cash, pointing out that since ISAs were introduced in April 1999, equities have had yearly returns from 5.2% to 7.5%, looking at indices such as the FTSE All Share Total Return and the S&P 500 Total Return.
He said corporate bonds offer a "middle ground" for those who are willing to try investing but want a good chance of a return on how much they put in. He explained: "They generally provide higher, more stable returns than cash, but with lower volatility than equities. For example, high-quality investment-grade bonds may return 4% to 6% annually, while high-yield bonds, which carry more risk can deliver returns upwards of 7% to 9%, depending on market conditions.
" The investment advocate said Labour should look to increase the appeal of investment-based ISAs by bringing in incentives such as matched contributions, tax-based rewards and tiered benefits for long-term investors. Pointing to other improvements that could be made, he said: "Embedding financial education tools within ISA platforms and expanding access to fractional investment opportunities, such as corporate bonds and diversified asset portfolios would help more individuals transition from low-yield cash savings to more productive, higher-return investments. "Increasing the overall ISA allowance to £40,000 would not only promote a stronger national savings culture but also provide the flexibility needed for intergenerational wealth planning and ensure ISAs are fit for purpose in addressing the UK’s long-term financial resilience and retirement security.
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