Labour issues update on plans to reform ISA investment rules

Labour has clarified its policy in ISAs after a question about the tax-free savings scheme. Lord John Lee asked the Government about how ISA savings that go towards overseas investments help towards the UK economy and the Government's "growth agenda".

The advantage of ISAs is any interest earnings or investment growth are tax-free. You can invest in stocks and shares through an ISA wrapper, and these can include investments in the UK or in other countries.

You can currently deposit up to £20,000 a year into most ISAs, and you can split this between different types of ISA. There have recently been reports that the Government is looking at bringing in a £4,000 cap on how much you can deposit in cash ISAs.

But Labour recently said it would keep the ISA allowance as it is. Responding to the query, Lord Livermore said: "The Government is committed to incentivising greater saving and investment, to help people save for their future goals and build greater financial resilience.

"The Government offers a generous tax treatment on ISAs to support people of all incomes and at all stages of life to save."

Lord Livermore also said there was a previous call for evidence from the Government, which closed on December 12, looking at how to increase investments in capital markets and to encourage more consumer investing.

He also said: "The Government is looking at options for reforms to ISAs that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission. The Government keeps all aspects of tax and savings policy under review."

Some savings experts think the Government should increase the ISA allowance. Danny Haynes, chief product officer at , said: "We hope the Chancellor will consider an additional £20,000 allowance for stocks and shares ISAs, providing tax relief of up to £40,000 in total annually.

"This will encourage the public to grow their wealth tax-free in a way that suits them, and help foster high-yield returns - putting the UK's 'lazy money' to work and fuelling the engine of economic growth."

Rezaah Ahmad, CEO of investment platform , also said the ISA allowance should be doubled. He urged: "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."

Labour was , a product which offers a 25% bonus on any deposits. You can pay in up to £4,000 a year and so you can get up to £1,000 on bonus cash.

The funds have to go towards buying your first home or can be accessed once you turn 60. Treasury minister Emma Reynolds was asked what reforms they were looking at for ISAs, but she declined to confirm any details.

Commenting on the two ways the Lifetime ISA can be used, Ms Reynolds said: "You could argue that one of the benefits of the dual purpose is it's very flexible.

"You may have a situation where somebody is using it to purchase a home, that doesn't work out, they could actually use it for a pension later in life."