Savers will be able to cash in on multiple Isas without a tax penalty under plans being considered by Chancellor Jeremy Hunt

Savers will be able to hold multiple Isas without a tax penalty, under reforms being considered by the Chancellor that could spark a savings war.

Currently, investors can only open and pay money into one of each type of Isa each tax year.

But ahead of the autumn statement on November 22, Treasury officials are reviewing plans to allow savers to open multiple accounts of the same type per tax year.

This could lead to fierce competition between cash Isa providers to offer better rates.

Savers could also earn hundreds of pounds extra in tax-free interest by shopping around without the existing barriers.

Currently, anyone who opens more than one type of cash can be charged taxes on the interest they earn, and their second account will be closed. This means they risk missing out on unused tax benefits.

The Treasury and HMRC have held a series of conversations with industry experts over the past six months to consult on key Isa reforms, insiders have told the Mail. The Treasury Department presented a “menu” of changes at its last meeting two weeks ago that could be unveiled later this month.

The reforms included plans to merge cash Isas with shares Isas, rename stocks and shares Isas to ‘investment Isas’ and rename Innovative Finance Isas.

Finance ministers are said to be considering new tax breaks for savers investing in UK shares.

However, the Chancellor is not expected to increase the £20,000 annual allowance or make any changes to the lifetime Isa. Campaigners have called for the exit fine to be scrapped and the property limit increased from £450,000.

Tom Selby, of Isa provider AJ Bell, said the new rule would allow savers to test multiple stockbrokers before making their choice.

‘It doesn’t make sense that people can only pay into one of each type of Isa. That rule doesn’t need to exist,” he says.

“It would allow someone who isn’t sure which investment platform to use to road test it in the same year.”

Savers could also earn hundreds of pounds extra in tax-free interest by shopping around without the existing barriers

This could lead to interest rate competition between providers, according to Selby.

Sarah Coles, from stockbroker Hargreaves Lansdown, said allowing savers to open more than one of each type of Isa would protect many who inadvertently break the rules.

She said: ‘People accidentally fall into this because it’s a little-known rule and it can cause real problems when they find themselves having to pay tax.

‘This would make it much easier to open, subscribe and transfer Isas, removing a layer of unnecessary complexity.’

Interactive Investor’s Alice Guy warned that Isas risk becoming too complex and difficult to navigate for DIY investors.

She said: ‘Policymakers must ensure that Isas do not reflect the complexity that the UK pension system has built up over time.’