The Labour Party Chancellor is reportedly considering reducing the cash ISA’s tax-free allowance, to as little as £4k.

A handy loophole could allow savers to keep their £20k cash limit is Chancellor Rachel Reeves cuts the limit. The Labour Party Chancellor is reportedly considering reducing the cash ISA’s tax-free allowance, to as little as £4k.

But UK households could take advantage of ‘proxy’ versions of the cash ISA if it was scrapped, according to one expert. But Philip Dragoumis, director and owner at Thera Wealth Management said savers who wanted to keep investing their full £20,000 ISA allowance cash could take out a stocks and shares ISA that invests in cash-based assets, a proxy.

He said: “You can easily replicate the cash in a cash ISA with sterling money market funds — funds that hold multiple deposits and very short term gilts in various banks.” Becks Nunn, a personal finance expert at Fidelity International, said: “A cash fund tends to invest in a portfolio of short-term cash deposits, money market instruments and high-quality bonds (to be absolutely sure what assets the cash fund holds, you should always check the fund factsheet).

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“It’s designed to provide a high level of stability and liquidity for investors looking for a modest investment return at the lower end of the risk spectrum.” James Norton, head of retirement and investments at Vanguard Europe, said: “We know that over the long-term stock market performance outstripped cash returns.

“For example, assuming an investment return of 6% a year after fees for 20 years, a £20,000 ISA would grow to just over £64,000. owever, if just one quarter of the ISA was held in cash earning 2% interest (a reasonable long-term rate), this would reduce the return by over 20% to around £53,000.

“The adage time in the markets, not market timing, has held for so long because it’s true. So, as you approach tax year-end and top up your ISA, make sure you aren’t eroding your returns or diminishing your likelihood of reaching long-term goals by sitting in too much cash.

“Instead, set yourself up for success by staying the course, because remaining ‘in the market’ tends to reward long-term investors.”