Halving annual cash ISA allowance could deliver £7 billion boost to savers who invest the extra cash in stocks

6 November, London - Halving the annual cash ISA allowance could provide a £7.2 billion returns boost for cash ISA holders likely to invest their excess funds, according to new analysis from investing and trading platform IG.

With the Chancellor expected to announce a move towards this in her upcoming Budget, IG outlines how impactful this could be in helping to drive a culture of investment in the UK. 

The potential £7.2 billion returns boost for savers

Using HMRC data¹, IG found that around one-third of cash ISA holders - roughly 2.8 million people - currently contribute more than £10k each year². Recent YouGov research³ shows that 28% of this group say they would invest any money above the new allowance into a stocks and shares ISA.

Combining these figures, IG’s analysis estimates potential additional returns of £7.2 billion over five years for this group of around 784,000 savers - equating to over £9.1k per saver.

To calculate the difference in projected returns between cash and investing, IG applied industry five-year forecasts⁴ for UK base rates alongside historical average returns from global markets⁵, providing a realistic estimate of the potential gains from reallocating excess cash into stocks and shares ISAs.

IG analysis refutes building societies' claims of significant impact on mortgage lending

Concerns that reducing the annual cash ISA allowance could hurt building society deposits, and as a consequence the mortgage market, appear largely overstated. 

The Building Society Association (BSA) reports that building societies hold around 40% of cash ISA balances⁶. IG’s analysis finds that around £1.6 billion of cash ISA contributions usually directed to building societies each year - just 0.4% of their total retail deposits⁷ - could be redirected to investing, indicating minimal impact on the sector.

Michael Healy, UK Managing Director at IG, said: “The Chancellor is absolutely right to tackle the UK’s overreliance on savings, starting with a product that does nothing for long-term wealth creation - the cash ISA. Reducing the annual allowance to £10k sends the right message that the government is serious about getting more people investing and we would encourage the government to go further by abolishing the cash ISA altogether.

“Our analysis refutes the claim from building societies that reducing the cash ISA allowance to 10k would impact their deposits significantly.  Suggestions that it could threaten the mortgage market are simply scaremongering. The reality is that this reform is sensible, proportionate, and long overdue. We urge the Chancellor to stick to her guns.”

¹ HMRC data

²  See below for detail on estimates of annual cash ISA contributions above the £10,000 level

³ YouGov data

⁴ See below for for interest rate forecast

⁵ Based on MSCI World Index returns taken from Bloomberg

⁶ BSA data

⁷  Building societies hold £399bn in retail deposits according to BSA data

About the research

To calculate the £7.2bn in potential returns boost, IG analysed HMRC data on cash ISA contributions over the past five years, which showed an average annual contribution of £46 billion, with approximately 8.5 million existing cash ISA subscribers. 

Using existing HMRC data showing that 42% of cash ISA subscribers contribute under £2,500⁸, IG estimates that one-third of ISA subscribers currently contribute between £10k and £20k annually. This amounts to 2.8 million existing cash ISA subscribers, accounting for just over £15bn of the total annual cash ISA contributions. 

To estimate how these savers might respond to a reduced allowance, IG used YouGov data indicating that 28% of this group would likely redirect funds above £10k into stocks and shares ISAs. This amounts to an estimated 4bn in annual contributions redirected towards investments.

Potential returns were modelled by comparing historical performance of the MSCI World Index with forecast cash rates. Cash ISA interest rates were assumed at 4% in 2026/27, 3.5% in 2027/28, and 3% from 2028/29 onwards, based on Santander and Oxford Economics projections. This approach produced estimates of the potential £9.1k+ per-saver gain and an overall £7.2 billion boost to UK ISA holders over five years.

More information on the methodology is available upon request. The methodology was produced by Granville Park Partners

About IG Group 

IG Group (LSEG:IGG) provides online trading platforms and educational resources to empower ambitious clients around the globe. Headquartered in the UK, IG Group is a FTSE 250 company that offers clients access to c.19,000 financial markets worldwide.

⁸ Section 1.4 of HMRC data on ISAs (ISA holders by income)