Major update on £20,000 cash ISA limit being cut as Rachel Reeves issues statement

Rachel Reeves has confirmed she won't reduce the £20,000 annual tax-free limit, following months of speculation. There had been rumours that the Chancellor was considering cutting the limit to as little as £4,000.

A cash ISA is a type of account where you can save up to £20,000 each tax year and any savings interest you make will be tax-free. Earlier this year, Economic Secretary to the Treasury, Emma Reynolds, urged for more money to be invested in the stock market instead.

The Treasury then confirmed in the March that the Government is "looking at options for reforms" for the cash ISA. But now, speaking to the on Monday, Ms Reeves revealed this won't include changing the tax-free limit.

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She said: “I’m not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.

“And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people. But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.”

There are also other types of ISAs known as stocks and shares ISAs where your money is invested into shares in individual companies. Instead of being given a set rate of interest, the rate of your return in a stocks and shares ISA is based on the performance of the firms you're invested in.

Savers have been more at risk of having to pay tax on interest they've made on their savings after rates improved over the past couple of years. But not everyone has to pay tax on savings interest.

If you're a basic-rate taxpayer, you can earn £1,000 every tax year in savings interest before you need to pay tax. The threshold is £500 for higher-rate taxpayers, while additional rate taxpayers don't get an allowance at all.

You would start to pay interest on the money earned from your savings once you earn above these thresholds. A document published after the Spring Statement in March read as follows: "The government is looking at options for reforms to Individual Savings Accounts 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.

"Alongside this, the government is working closely with the Financial Conduct Authority to deliver a system of targeted support to give people the confidence to invest."