Industry sounds new alarm bell over Reeves's ISA reforms

The investment industry has intensified warnings to the government over plans to limit cash ISAs, arguing that they risk undermining British investors' willingness to back listed companies.

Sky News has learnt that a meeting on Tuesday involving major industry players including Hargreaves Lansdown, HSBC and Lloyds Banking Group, along with officials from the Treasury and HM Revenue and Customs, descended into a heated exchange over the implications of the Treasury's reforms.

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Under plans confirmed by Rachel Reeves at November's budget, the cash ISA allowance will be slashed from £20,000 to £12,000 from April 2027, with the exception of savers aged under 65.

The chancellor said the move was aimed at stimulating greater investment in the UK stock market, with the £8,000 balance available for investment in stocks and shares ISA products.

The Treasury and HMRC are now drawing up detailed anti-circumvention rules including banning transfers from stocks and shares and Innovative Finance ISAs to cash ISAs; the use of tests to determine whether an investment is eligible to be held in a stocks and shares ISA or is 'cash-like'; and charges on any interest paid on cash held in a stocks and shares or Innovative Finance ISA.

However, the investment industry has been vocal in warning that the rule changes will increase complexity and penalise savers who are focused on derisking their portfolios before they turn 65.

There are also growing concerns that a more robust approach to taxing cash balances held in stocks and shares ISAs would severely damage the image of ISAs as a tax-free investment option.

Any evidence that the reforms are undermining stock market investing ahead of the next general election would be damaging to Ms Reeves, who has instructed the industry to work on a multimillion-pound campaign aimed at promoting retail investments to the public.

A number of firms have already pulled out of participating in that campaign over its costs and coordination.

One industry figure who attended Tuesday's talks said: "It became abundantly clear at the meeting today that significant reforms to ISAs are being made on the hoof with little understanding of how retail investors behave or the extent of potential unintended consequences.

"HMRC has been put in an invidious position of trying to implement changes that are fundamentally flawed.

"Rather than rushing to do something which risks undermining retail investing, the chancellor should go back to the drawing board and build an evidence base for sensible, long-term reforms aimed at supporting retail investors."

The reforms will be subject to a consultation period, with draft legislation - in the form of amendments to the ISA regulations - laid before parliament well in advance of April 2027.

In the 2023-24 tax year, savers ploughed a record £103bn into ISAs, with almost exactly two-thirds of that - £70bn - invested in cash ISAs.

Among the others in attendance at Tuesday's meeting were the Building Societies Association, AJ Bell, Fidelity, Vanguard and the Investment Association.

A government spokesperson said: "To encourage greater investment in stocks and shares, we're developing changes to ISA rules which will prevent circumvention of the new lower cash ISA limit.

"We're already working closely with industry and will publish clear guidance before the changes come into effect."

(c) Sky News 2026: Industry sounds new alarm bell over Reeves's ISA reforms