Proposed reforms to ISAs could undo much of the simplification introduced in 2014 and leave savers facing a “more restrictive and complex landscape”, Charles Stanley Direct has warned.

Under reported plans expected from Chancellor Rachel Reeves, the annual cash ISA allowance would fall from £20,000 to £12,000 for under-65s from April 2027, while a new 22% charge would apply to interest earned on cash held within stocks & shares ISAs.

The overall ISA allowance would remain at £20,000, with over-65s retaining the full cash allowance.

Rob Morgan, who is chief investment analyst at Charles Stanley Direct, part of Raymond James Wealth Management, thinks that while reforms are designed to encourage greater investment participation, the accompanying “anti-circumvention” measures could have unintended consequences.

“The suite of ‘anti-circumvention’ measures risks reversing much of the simplification of ISAs achieved in 2014, replacing it with a more restrictive and complex landscape,” said Morgan.

He argued the proposed 22% levy would effectively revive elements of the pre-2014 ISA regime, when cash held within stocks & shares ISAs was taxed.

“A product that has long been marketed as a straightforward, tax-free wrapper will come with a significant caveat.”

The analyst also warned that restrictions on transfers from stocks & shares ISAs into cash ISAs, alongside possible limits on “cash-like” holdings such as money market funds, could reduce flexibility for savers and investors managing risk. This is because holding cash or near-cash investments within a stocks & shares ISA is an important part of how many private investors actively manage risk.

Morgan added that while encouraging investment is a “sound policy objective”, greater complexity could ultimately deter participation, particularly among cautious or less experienced savers. “Rather than nudging cautious savers towards investing, a more complex and restrictive system may simply deter participation,” he said.

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