Savers are already taking evasive action. They rushed to stash £3.9billion into Cash ISAs in May alone. That followed a record-breaking £14billion surge in April, the biggest monthly inflow since ISAs were launched in 1999.
The panic is being driven by credible rumours that Reeves could slash the £20,000 annual ISA allowance to as little as £4,000. The announcement will come in her Mansion House speech on July 15.
Her goal? To push more savers towards Stocks and Shares ISAs, in a bid to prop up the struggling UK equity markets.
Risk-averse pensioners, cautious families and emergency savers would be hit hardest. Many are now moving cash from taxable savings into ISAs while they still can.
That’s a smart move. But more action is needed, because Reeves is preparing a wider crackdown on personal wealth.
The Chancellor now faces a £20billion black hole in her autumn Budget. She’s ruled out hikes to income tax, VAT and National Insurance. That leaves one clear option: your savings.
While Reeves has pledged to protect the £20,000 allowance for Stocks and Shares ISAs, she could attack Isas from another direction.
Senior Labour figures have previously argued for a £100,000 lifetime cap on total ISA holdings. That will no doubt come up for discussion again.
She could also scrap the £500 dividend allowance, already slashed to the bone by Jeremy Hunt. This would hit investors and small business owners with shares held outside ISAs.
Pensions could be next. The Treasury has long eyed the 25% tax-free lump sum, currently capped at £268,275.
Tax experts fear Reeves might slash this to £100,000 or even £75,000, netting billions.
Only those with pension pots above £300,000 would be affected, so she could frame this as a raid on the wealthy.
Alternatively, she could cut the £40,000 annual pension allowance to £30,000 or even £20,000.
Then there’s tax relief on pension contributions, which costs the Treasury nearly £50billion a year. Rumours abound before every Budget that higher 40% and 45% rates of relief could be scrapped, replaced with a flat 25% for all.
Labour could also spin this as a win for low earners.
Salary sacrifice schemes could also be curbed. We’ll find out in the autumn.
Labour rebels are emboldened by their success blocking welfare cuts and now pressing for further tax raids.
Top of their list: capital gains tax (CGT). Some MPs want the top rate hiked from 24% to 40% or even 45%, bringing it in line with income tax.
Reeves was said to be seriously considering it. Until Treasury forecasts suggested it might backfire, as investors delay selling assets. She may press ahead anyway.
Even more controversial would be scrapping the CGT exemption on death – forcing grieving families to pay CGT and inheritance tax on the same assets. A double tax blow.
That would be a very Rachel Reeves move. She’s already bringing in inheritance tax on unused pension pots from 2027. Beneficiaries face income tax on pension withdrawals too, meaning a double whammy.
Labour MP Andy McDonald has gone further, calling for a 2% wealth tax levy on anyone with more than £10million in assets.
While wealth taxes are easy to announce they’re hard to collect. The wealthy can restructure or relocate. Ordinary savers can’t. Reeves knows that. She’s betting your money won’t move.
So yes, the ISA raid may be first – but under this Chancellor, it won’t be the last.
