What would the Isa allowance be now if it had increased with inflation?

The freezing of the annual Isa allowance at £20,000 until 2030 was greeted with a mix of relief and disappointment.

On the one hand, savers breathed a sigh of relief that the Chancellor took no action to cut the annual Isa allowance or impose a lifetime limit on the amount that can be accumulated in tax-friendly accounts.

But on the other hand, savers have been given a clear indication that the tax-free limit will not be changed for another six years, a move that has not been a feature of previous Budgets, which typically showed relief only for the next financial year. .

As a result, it means the Isa allowance looks set to be frozen for 13 years.

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 the Savings Champion website, said: “At least we can breathe a sigh of relief that the Isa grant and personal savings grants have not been cut or even abolished.”

But the tax-free Isa subsidy would be £26,082 today if it had increased in line with inflation, reveals the This is Money analysis.

The annual provision for cash and stocks and shares Isas was raised to its current level of £20,000 from £15,000 in April 2017.

If the tax-free Junior Isa allowance had increased with inflation, it would be £11,277 Today, This is Money’s calculations show it.

The Junior Isa allowance was increased to £9,000 in April 2020. Before that, it was £4,368.

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

Freezing the £20,000 Isa subsidy for another six years until 2030 will squeeze savers with larger funds and could make them worse off to the tune of £56,500, according to data from Leeds Building Society.

As of the end of the last tax year, just over £11,000 in tax-free savings has been “lost” due to the Isa allowance limit not keeping up with the CPI, with a further £45,500 expected to fall victim to inflation at the end of the 2029/30 financial year, says Leeds.

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

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

Catherine Wray, senior savings director at Leeds Building Society, said: “Increasing the Isa allowance by even a small amount would be a way of giving something back to savers across the country.”

“As wages have increased while income tax thresholds have remained the same, more people have moved into a higher tax bracket, impacting the amounts of their tax-free allowances and causing “That’s even more important.”

It should be noted that the Isa limit has been frozen for long periods in previous years.

For example, the amount that could be put into an Isa was frozen at £7,000 between its launch in 1999 and until 2007/8, when it rose by just £200.

The biggest change came in 2014/15, when the overall allowance was increased from £15,000, and people were able to split the money between cash and shares and share accounts as they saw fit.

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

Anna Bowes adds: “Not only have Isa allowances been frozen, but the initial savings rate will remain at £5,000 for 2025/26.” This allows savers with less than £17,570 in employment or pension income to receive up to £5,000 of tax-free savings.

“While it’s another year of frozen savings allowances, which is frustrating when higher interest rates mean many people are paying far more tax on their cash savings than they have for years.”

The personal savings allowance, which sets out how much interest savers can earn before paying tax, 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 allowance.