Will the ISA Allowance Increase in 2023/24 in the UK?

personal savings account

Currently, the benchmark for ISA allowance stands at a point of £20,000, while that for junior ISAs is £9000 a year, and to say the least, it’s been like that for a while now.

With inflation on a roll, and the number of people that invest in an ISA, a tax-free interest entity, going low every fiscal year, it’s hard to determine where the limit is headed, and whether or not there’s a chance of an increase in the coming year.

Though there’s a lot that can be speculated after the government’s decision not to increase the limit for the year 2022/23, and we’ll break it down to better understand the events that can happen in the next few months.

When Did The ISA Allowance Chance Last?

Reading historical patterns regarding ISA (Individual Savings Account) is a no-brainer and common way to predict whether the allowance will increase or not, and that’s what we’ll present to you, in an easy-to-grasp way.

Roughly put, the last time the ISA allowance increased was 6 years ago, and not being increased for that long can be read as an indicator of change in the next year. Before being increased to £20,000, the ISA allowance sat at £15,240, which, in turn, was increased from  £15,000.

Unlike other accounts, ISA allows investors and savers to shield their money from the capital gains tax, and at the same time, maximise the returns on their investment. Over the past couple of years, despite the frozen allowance price point, capital gains allowance and the dividends have been shrinking, and it sure doesn’t look good. 

Inflation and ISA Allowance Go Hand In Hand

Inflation has played a major role in previous ISA allowance increases, and unless you’ve been living under a rock for a good while, you’ll notice that inflation is at an all-time high, especially in the UK. 

The annual inflation rate for the UK dropped to 10.1% in December 2022, from a high of 10.5%, and you don’t need to be a finance major to know that that percentage is too high for your good.

Nevertheless, the one good thing about the increasing percentage of annual inflation is that it’s almost always coupled with an increase in the ISA allowance. 

That, and with the upcoming taxation burden coming with an increase in National Insurance, an increase in ISA allowance might be presented as a perfect break for taxpayers amidst a troubled economy.

It’s Not All Sunshine and Rainbows

Though there’s an increase in the speculation of ISA allowance increase, not all evidence points in that direction, and as mentioned before, there are a lot of factors at play.

Sure, increasing inflation might lead to an increase in the allowance, but with this increase, the overall number of people investing or maxing out in ISA is becoming significantly lower.

Let’s analyse this report from the UK government. According to the latest trends, approximately 20% of people maxed out their ISA allowance for the previous tax year, but that’s not all. More than 40% of these people are the ones that are earning £125,000 or above. 

With the current economic conditions, ISA is tailing more towards rewarding the already wealthy than the lower-income people at the bottom, and some would say that it’s one of the reasons why the allowance might not go up.

How Much Can The Allowance Increase?

Nothing can be said for sure, but some maths can be done. We know that like in previous times, ISA allowance might be in line with the inflation rate of its current tax year. 

The United Kingdom has seen some of the worst economic inflation rates in its history, going as much as 10.5% at one point. If we assume an inflation rate of 8% for the current tax year, you can expect the allowance increase to be anywhere from £22,000 to 25,000. 

Though, this is completely a calculated prediction and not a written-in-stone range that the allowance might fall into, if it decides to increase.

So, Will The ISA Allowance Increase?

As mentioned before, there are a lot of factors at play when we talk about an increase in ISA allowance, and while it’s a good idea to know what can be expected, predicting whether the allowance will increase, from an outside perspective, is downright impossible.

Previously, ISA allowance has been in line with inflation, and while that was six years ago, it had a massive increase of almost £5000 the last time it went up. Even before this big jump, we’ve seen similar smaller jumps the allowance limit has made over the years. 

In the end, we’ll just have to wait around for the Autumn budget, as that’s when the UK government decides the amount of ISA allowance for the next tax year, which will occur anytime in October.

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