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

The annual Isa allowance frozen at £20,000 until 2030 has caused a mixture of relief and disappointment.

On the one hand, savers are breathing a sigh of relief as the Chancellor has taken no steps to cut the annual Isa allowance or impose a lifetime limit on the amount of money that can be accumulated in the tax-efficient accounts.

But on the other hand, savers have been given a clear indication that the tax-free limit will not change for the next six years – a move that was unusual in previous budgets, which typically only showed the allowance for the following financial year. .

As a result, this means that Isa benefits will be frozen for thirteen years.

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 April 5, 2030.

Anna Bowes, co-founder of website Savings Champion, says: ‘We can at least breathe a sigh of relief that the Isa benefit and Personal Savings Allowance have not been reduced or even abolished.’

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

The annual allowance for Cash, Stocks and Shares Isas was increased from £15,000 in April 2017 to the current level of £20,000.

If the tax-free Junior Isa benefit had risen with inflation, that would be the case £11,277 today the calculations of this money show.

The Junior Isa benefit was increased to £9,000 in April 2020. Previously this was £4,368.

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

The £20,000 Isa benefit frozen for another six years until 2030 will put pressure on savers with bigger pots and could leave them worse off by up to £56,500, according to data from the Leeds Building Society.

To the end of the last tax year, just over £11,000 of tax-free savings has been ‘lost’ due to the Isa benefit limit not keeping pace with the CPI, and a further £45,500 is expected to fall victim by the end of this year of inflation. the 2029/30 tax year, says Leeds.

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

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

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

‘As wages have risen while income tax thresholds have remained the same, more people have moved into a higher tax bracket, impacting the amounts of their tax-free benefits and making Isas even more important.’

It’s worth pointing out that the Isa limit has been frozen for long periods in recent years.

For example, the amount that could be put into an Isa was frozen at £7,000 between its launch in 1999 and 2007/2008, where it only rose by £200.

The biggest change came in 2014/2015, when there was an increase of £15,000 in total, with people able to divide their money between cash and shares and share accounts as they saw fit.

It then got a big boost in 2017 to £20,000, where the limit has remained ever since.

Anna Bowes added: ‘It’s not just Isa balances that have been frozen, it’s also that the starting rate for savings for 2025/2026 remains at £5,000. This allows savers with less than £17,570 in employment or pension income to receive up to £5,000 in savings income tax-free

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

The personal savings allowance, which determines 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.

Taxpayers with an additional rate do not have a personal savings deduction.