Budget 2024: Major ISA update confirmed by Rachel Reeves - what you need to know

The new Chancellor touched on Jeremy Hunt's Spring Budget proposal in her statement to the Commons today, months after it was rumoured to have been dropped by the government

The Treasury has confirmed plans to scrap the British ISA - less than a year after it was announced by the previous Conservative government.

Plans for the British ISA were originally announced by then-Chancellor Jeremy Hunt earlier this year in his Spring Budget on March 6. The accounts would have given savers a £5,000 top-up to their tax-free savings allowance, on top of the existing £20,000. Despite having been billed as an effective means to encourage investment in the UK, the proposals were criticised before they had a chance to take shape.

The decision to scrap the British ISA was confirmed in documents published after the Budget, which state: "The government will not proceed with the British ISA due to mixed responses to the consultation launched in March 2024."

Rachael Griffin, tax and financial planning expert at Quilter: "The British ISA, as proposed, was flawed from the outset. It threatened to restrict investors by limiting the scope of eligible investments to UK assets and potentially curtailing their ability to transfer funds to other ISAs. Such limitations would have worked against the goal of long-term wealth building, ultimately reducing investor flexibility and choice.

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"The real issue lies not in a lack of ISA options, but in the fact that too much capital is currently tied up in low-yielding cash ISAs, which fail to benefit either consumers or the broader economy. Encouraging more individuals to invest their savings for the long term—rather than sitting in cash—would bring far greater advantages to the UK as a whole."

Meanwhile, Rachel Reeves did not make any changes to ISA allowances, which will remain at £20,000 each tax year. The different types of ISAs already available are: Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, Lifetime ISAs and Junior ISAs. You can invest £20,000 across a range of different ISA accounts but there are some accounts where the limit is smaller than this. For example, you can only save £4,000 each tax year in a Lifetime ISA, or if you’re saving into a Junior ISA for your child, the limit is £9,000 each tax year. However, any money you save into a Junior ISA does not affect your own £20,000 allowance.