What would the Isa allowance be now if it had risen with inflation?

The annual Isa allowance being frozen at £20,000 until 2030 was met with a mixture of relief and disappointment. 

On the one hand, savers breathed a sigh of relief that the Chancellor did not move to cut the annual Isa allowance or impose a lifetime cap on how muc can be amassed in the tax-friendly accounts. 

But on the other, savers have been given a clear indication that the tax-free limit will not move for another six years – a move that has not been a feature of previous Budgets, where typically it showed the allowance for the next financial year only.

As a result, it means the Isa allowance looks set for a 13 year freeze.  

The Budget documents show that annual subscription limits will remain at £20,000 for cash and stocks and shares Isas, £4,000 for Lifetime Isas and £9,000 for Junior Isas until 5 April 2030. 

Anna Bowes, co-founder of website Savings Champion said: ‘We can at least sigh with relief that the Isa allowance and the Personal Savings Allowances have not been cut or even abolished.’

But the tax-free Isa allowance would be £26,082 today if it had risen in line with inflation, This is Money analysis reveals.

The annual allowance for cash and stocks and shares Isas was raised to its current level of £20,000 from £15,000 in April 2017.

If the tax-free Junior Isa allowance had risen with inflation it would be £11,277 today, This is Money calculations show. 

The Junior Isa allowance was boosted to £9,000 in April 2020. Before that it was £4,368.

While the Lifetime Isa annual allowance would be £5,216 today if it had risen with inflation since it was launched in April 2017.

The £20,000 Isa allowance being frozen for another six years until 2030 will squeeze savers with bigger pots and could make them worse off to the tune of £56,500, according to Leeds Building Society data. 

Up to the end of the last tax year, just over £11,000 in tax-free savings has been ‘lost’ through the Isa allowance limit not keeping up with CPI, with a further £45,500 forecast to fall victim to inflation by the end of the 2029/30 tax year, Leeds says.

Around 16.9 per cent of Isa holders used up their full £20,000 Isa limit between 2021 and 2022, HMRC figures show. 

This rises to 38 per cent of Isa holders who earn £100,000 to £149,999, and to 59 per cent of those with income of £150,000 or more.

Catherine Wray, senior manager for savings at Leeds Building Society, said: ‘Increasing the Isa allowance even by a small amount would be a way to give something back to savers across the country.

‘As wages have increased whilst income tax thresholds have remained the same, more people have tipped into a higher tax bracket, impacting their tax-free allowance amounts and making Isas even more important.’

It is worth pointing out that the Isa limit has been frozen for large periods in previous years.

For example, the amount that could go into an Isa was frozen at £7,000 between launch in 1999, until 2007/8, where it nudged just £200 higher.

The biggest change came in 2014/15, when a boosted £15,000 overall allowance came in, with people able to split money between cash and stocks and shares accounts as they saw fit.

Then had a big boost in 2017 to £20,000, where the limit has sat at ever since.  

Anna Bowes adds: ‘It’s not just the Isa allowances that have been frozen, it’s also the starting rate for savings will remain at £5,000 for 2025/26. This allows savers with less than £17,570 in employment or pensions income to receive up to £5,000 of savings income tax free

‘While it’s another year of frozen savings allowances, which is frustrating when higher interest rates means that many people are paying far more in tax on their cash savings than they have for years.’

The Personal Savings Allowance, which sets out how much interest savers can earn before paying tax on it, remains unchanged at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. 

Additional rate taxpayers have no personal savings allowance.