Scrap Cash ISAs to Fund Child Investment Grants, UK Platform Urges

An investment platform has proposed that the United Kingdom government scrap cash Individual Savings Accounts (ISAs) entirely and reallocate the funds towards providing a £1,000 investment grant for every child born in the UK. The suggestion comes from investment platform IG, which argues that this shift would better encourage early investment and long-term financial planning.

Under the current system, cash ISAs allow savers to deposit up to £20,000 annually without paying tax on the interest earned. However, from April 2027, this annual limit is set to decrease to £12,000 for individuals under 65. IG estimates that eliminating cash ISAs could generate approximately £610 million in tax receipts annually by 2032-33. The proposed cost of the £1,000 grant for each child is estimated at around £700 million per year.

IG's proposal suggests that existing cash ISA balances would retain their tax-free status, with the change affecting future contributions. The platform noted that in the 2024-25 fiscal year, households added roughly £48 billion to cash ISAs. If cash ISAs were abolished, IG projects that 51% of these funds would instead be held in taxable savings accounts, with an effective tax rate of 17% applied.

Cash ISA contributions significantly outpace those for stocks and shares ISAs. In 2024-25, cash ISA subscriptions increased by £26.1 billion, a 37.5% year-on-year rise. In contrast, stocks and shares ISA contributions grew by £6.1 billion during the same period. Data indicates that cash ISAs represented 64% of all adult ISA accounts subscribed to in 2024-25.

Michael Healy, CEO of IG Consumer, stated that making investing a more normalized part of life is crucial for households to build greater financial resilience. He added that phasing out cash ISAs could generate sufficient funds to cover most of the annual cost of the proposed child investment grant. The government has expressed a desire to encourage more investment in British companies to stimulate the economy.

Changes to Cash ISA Limits

The annual allowance for tax-free savings in cash ISAs is scheduled to be reduced from £20,000 to £12,000 for individuals under 65 starting in April 2027. This change was announced by former chancellor Rachel Reeves with the aim of promoting investment in stocks and shares. The current £20,000 annual allowance can be fully utilized in one ISA product or distributed across multiple types. Savers aged 65 and over will continue to be eligible to save up to £20,000 annually in cash ISAs, while the tax-free allowance for stocks and shares ISAs remains unchanged at £20,000.

Rationale for Cash ISA Popularity

Easy-access cash ISAs are often favored by individuals who need occasional access to their funds or wish to build an emergency savings buffer. Many people also express greater comfort with holding money in cash accounts compared to stocks and shares, despite the potential for inflation to erode its value over time. While stocks and shares investments typically offer higher long-term returns, they also carry inherent risks. Financial advisors generally recommend against investing funds that may be needed within the next five years to mitigate exposure to market volatility.

IG's Stance on Capital Gains Tax

In addition to advocating for the abolition of cash ISAs, IG has urged the Labour party to refrain from increasing capital gains tax. Capital gains tax is applied to profits made from the sale of assets such as shares, second homes, buy-to-let properties, and personal possessions. Previous analysis by IG suggested that equalizing capital gains tax rates with income tax rates could reduce Treasury revenue by approximately £7.8 billion annually. The platform argues that higher capital gains tax rates could discourage investment at a time when it is most needed.