Individuals should act quickly to make the most of their ISA allowance amid rumours that the Chancellor is considering reducing the cash ISA tax-free allowance to £4,000, according to Wealth at Work.

With the end of the tax year nearing, Wealth at Work highlighted there was still time for people to take full advantage of the current £20,000 ISA allowance.

It noted that Chancellor, Rachel Reeves, was understood to be mulling over whether to decrease the tax-free allowance by 80 per cent to £4,000 a year.

Whilst the firm acknowledged it was not confirmed whether such a change would be introduced, there was speculation that it could be as early as 6 April 2025.

Additionally, Wealth at Work highlighted that there had been several reductions in tax allowances and increase in tax rates recently, and maximising ISA contributions before the end of the tax year was therefore more important than ever.

“With the end of the tax year fast approaching and rumours that the cash ISA allowance may be drastically cut, it’s more important than ever that people review their finances now,” said Wealth at Work director, Jonathan Watts-Lay.

“It’s crucial to keep in mind that any unused allowance can’t be carried over into the new tax year. So, for those who have savings or investments held outside an ISA or a pension, it is a case of ‘use it or lose it’.

“Many other savings allowances have shrunk in recent times. This includes the tax-free dividend allowance, which has fallen from £5,000 in 2017/18 to just £500 today, while the capital gains tax (CGT) exemption, which was £12,300 in 2022/23, has dropped to £3,000.

“From October 2024, CGT rates rose to 18 per cent for basic rate taxpayers and 24 per cent for those paying tax above the basic rate.

“Not only this but rising interest rates have also led more savers to exceed their personal savings allowance (£1,000 for basic rate taxpayers and £500 for higher rate taxpayers), resulting in unexpected tax liabilities.

“In contrast, the ISA allowance currently still remains at £20,000 which allows individuals to shield their savings and investments from taxes on interest, dividends, and capital gains; although we don’t know how this will change in the future.”

---