01 Oct 2025
Preparing for ISA simplification

Toby Larkman, Managing Director, Wealthtime
Trying to pre-empt changes in tax policy based on rumours is a dangerous game. Think back to the 2024 autumn Budget, when suggestions were rife that the Chancellor was planning to limit tax-free cash withdrawals from pensions. The speculation sparked a wave of panic, prompting some to take their tax-free cash earlier than planned. When the anticipated changes didn’t materialise, people scrambled to reverse their decisions, with many finding their withdrawals couldn’t be undone[1].
Fast forward to the end of the 2024/25 tax year, and similar speculation that Cash ISAs contribution limits were about to change as part of a drive to boost UK retail investment led to a surge in deposits. Bank of England figures show £14 billion was paid into ISAs during April 2025, the highest monthly total since records began in April 1999.[2] A further £3.9 billion was added in May[3] , and given widespread expectations that Rachel Reeves would announce limit changes in her July Mansion House speech, we may well see elevated flows in June too.

If the government is serious about encouraging retail investment, it must work hand-in-hand with the advice profession to deliver reforms that are not only effective but also manageable.
Toby Larkman, Managing Director
As it happened, no changes to Cash ISAs were announced in the Chancellor’s speech. However, she did confirm that the option is still on the table, saying: “I will continue to consider further changes to ISAs, engaging widely in the coming months.”[4] She also reiterated her belief that we need to encourage a retail investment culture “so that more savers can reap the benefits of UK economic success.”
The cultural shift from savings to investments
The government is clearly on a mission to move the nation’s mindset from holding savings in cash towards greater participation in investing. It seems likely that some form of ISA simplification is on the cards to support the desired cultural shift.
There are certainly issues with the current ISA landscape. Originally launched in 1999 to encourage greater saving and investment with a simple £7,000 tax-free allowance across Cash and Stocks & Shares ISAs, the system has since grown in complexity. Innovative Finance and Lifetime ISAs are now available alongside the original two ISA account types, each with its own rules and limits, creating confusion and potential for error.
Simplifying the ISA framework could well have a positive impact on consumers. A more streamlined system would reduce confusion, encourage participation, and potentially improve long-term outcomes. But the success of any reform will depend heavily on how, and crucially when, it is implemented.
What are the options?
Rachel Reeves has several options. For instance, she could indeed decide to lower the tax-free allowance on Cash ISAs to nudge savers towards Stocks & Shares ISAs. However, banks and building societies have already voiced concerns that this could reduce the deposit levels, limiting their ability to lend. It could also result in cash savers simply paying more tax on their non-ISA holdings.
Another possibility is to merge the Stocks & Shares and Innovative Finance ISAs into a single investment ISA with a broader choice of eligible assets. With long-term asset funds, designed to provide access to less liquid investments, already set to be included in Stocks and Shares ISAs from next April, this could be a logical next step.
Alternatively, the Treasury could introduce a universal ISA: a single account with one overall limit allowing people to split their contributions across cash, stocks and other investments. This would simplify the rules and reduce the administration involved with managing separate allowances. The ease and flexibility of a single tax-free wrapper may also encourage more people to move money from cash to investments.
Looking forward
Whatever route the Chancellor takes, simplification is likely to require system change in the short term, although long-term it would hopefully reduce the admin burden created by the current complexity.
A key challenge for the Treasury will be in determining the appropriate length of time between announcement and implementation. Too short, and it risks causing significant disruption for providers and advisers who need time to adapt their technology and processes. The abolition of the Lifetime Allowance looms large in the collective memory as leaving many questions unanswered until the eleventh hour, creating difficulties for the sector and confusion for individuals planning their retirement.
However, a prolonged implementation period, or ongoing uncertainty, could trigger a ‘closing down sale’ effect, prompting hasty decisions that may ultimately harm consumers.
If the government is serious about encouraging retail investment, it must work hand-in-hand with the advice profession to deliver reforms that are not only effective but also manageable.
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[1] https://www.gov.uk/government/publications/pensions-schemes-newsletter-165-december-2024/newsletter-165-december-2024#tax-treatment-of-tax-free-lump-sums-paid-back-into-a-registered-pension-scheme
[2] https://www.bankofengland.co.uk/statistics/money-and-credit/2025/april-2025
[3] https://www.bankofengland.co.uk/statistics/money-and-credit/2025/may-2025
[4] https://www.gov.uk/government/speeches/rachel-reeves-mansion-house-2025-speech
This article is intended for regulated financial advisers and investment professionals only. Wealthtime does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.