Here’s why Stocks and Shares ISA investors shouldn’t ignore the Autumn Budget
Chancellor Rachel Reeves has just cut the annual Cash ISA allowance. Starting April 2027, it drops from £20,000 per year to £12,000.
But we’re OK, we Stocks and Shares ISA investors, right? I see reasons we shouldn’t be complacent — and should make the most of the tax-free benefits while we can.
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No rise since when?
The Chancellor reportedly wants UK investors to go more for stocks and shares, putting our money into more productive assets. And the productivity of the UK stock market over the past 150 years or so has been hard to beat.
But is she really that keen for us to buy more shares? Why didn’t she consider raising the limit at the same time as lowering the Cash ISA allowance?
The annual £20,000 we can put into a Stocks and Shares ISA hasn’t changed since the 2017/18 year. Since then we’ve suffered soaring inflation. And the tax-free amount we can invest has fallen considerably in real terms. That doesn’t look to me like a strategy for turning the UK into a nation of shareholders.
In future years?
Governments are always looking at ways to squeeze a bit more tax out of us. And the amount we currently don’t have to pay on ISAs must be very tempting. Estimates suggest ISA investors will have saved a total of £9.4bn in tax in the 2024/25 tax year.
And it looks like the average Stocks and Shares ISA investor will have saved more than six times as much as the average Cash ISA holder.
Rumours were going round before this latest budget of a raid on all ISAs, not just Cash ISAs. That sizeable pile of untapped tax potential must raise a glint in the eye of any chancellor, current or future.
I really see the ISA allowance as something of a golden egg for UK investors. And I reckon we should make the most of it we can before the goose’s laying days are possibly restricted.
What to buy?
Let’s look at one of my top ISA candidates at the moment, Legal & General (LSE: LGEN). Right now, there’s a forecast 8.7% dividend yield on the stock. And forecasts would put the yield above 9% by 2027 if the share price doesn’t change.
A full £20,000 ISA allowance invested in Legal & General shares could generate £1,740 in dividend income per year. The same sum left there for a whole decade, even without an extra penny added, could earn £17,400 in dividends — even if the annual payment doesn’t increase in 10 years.
Now, Legal & General is in a volatile sector, so I could see ups and downs over the decade. And dividends are not guaranteed.
But the tax saving on this kind of dividend cash can make a significant difference — and we haven’t touched on possible share price gains. I say let’s do the most we can to keep as much if it as possible in our pockets and out of government hands. We need to make the most of our allowance.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
