The Treasury has delayed the release of planned ISA reforms after concerns emerged over a loophole in the Chancellor’s proposed crackdown on cash savings.
Rachel Reeves announced in last year’s Budget the annual cash ISA allowance would be reduced from £20,000 to £12,000 for savers under the age of 65.
Under the proposals, the stocks and shares ISA allowance would remain unchanged, although a 22 per cent tax on interest earned from cash holdings within those accounts was also planned.
The Telegraph reported savers could potentially avoid the levy by placing a small amount of money into equities while holding the remainder in money market funds.
Money market funds generate returns through low-risk short-term securities and can offer returns similar to traditional savings accounts while still qualifying as investment products.
Sources indicated Treasury officials are now reassessing how the policy would operate in practice.
Shadow chancellor Sir Mel Stride urged the Chancellor to abandon the proposed reforms and criticised the plans as a "tax raid on savers".
He said: "Rachel Reeves should ditch these plans for a tax raid on savers.
Rachel Reeves delays ISA reforms after loophole uncovered in savings tax plans
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"Not only are Labour punishing people for doing the right thing and saving responsibly, it's also now clear that these changes will be a complete nightmare to administer."
The Conservative frontbencher also warned the ongoing uncertainty surrounding the reforms risked "leaving people in the dark".
Critics of the proposals have argued the changes could discourage savers while adding significant complexity to the ISA system.
Industry figures have also raised concerns over the administrative burden associated with introducing measures designed to prevent savers exploiting loopholes within the new framework.
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Shadow Chancellor Mel Stride accused the Chancellor of punishing people for saving responsibly
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AJ Bell director of public policy Tom Selby said: "We can only hope that any delay is because officials have recognised creating new tax charges for Isa investors and layering on burdensome complexity is unnecessary and precisely the wrong way to foster a retail investing culture in the UK."
Freetrade’s Alex Campbell said uncertainty surrounding the reforms risked undermining the Government’s stated ambition of encouraging greater retail investment participation.
Charles Stanley Direct analyst Rob Morgan warned the Treasury risked replacing the existing ISA framework "with a more restrictive and complex landscape".
A Treasury spokesman defended the proposals and insisted most savers would continue paying no tax on their savings.
They said: "The vast majority of savers will continue to pay no tax on their savings and the Treasury and HMRC are working at pace with industry on the detailed rules and will update on next steps in due course."
The difficulties surrounding the reforms contrast sharply with the simplification of the ISA system introduced in 2014, which contributed to a 45 per cent increase in contributions during its first year.
Industry observers have warned the latest proposals could reverse some of the progress achieved under the simplified system.
The reforms were originally designed to encourage more people to invest in financial markets, although critics argue the continued uncertainty surrounding the plans may have the opposite effect.
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