The Government has issued an update regarding a potential new ISA product, following a question from Liberal Democrat MP Sarah Dyke about introducing “charity ISAs” to provide long-term funding for the charity sector. Treasury minister Rachel Blake responded, stating that the Government already offers a range of tax-advantaged savings accounts (ISAs) that are well placed to support individuals in donating capital or growth to a charity of their choice.
Current ISA Options and Tax Advantages
Currently, savers can choose from cash ISAs, stocks and shares ISAs, innovative finance ISAs, and Lifetime ISAs. Junior ISAs are also available for children under 18, with an annual deposit limit of £9,000. A key benefit of ISAs is that any interest earnings or investment growth within these accounts is entirely tax-free. In contrast, for savings accounts outside ISAs, basic rate taxpayers can earn up to £1,000 in interest per tax year without paying tax, higher rate taxpayers up to £500, and additional rate taxpayers get zero allowance.
Government's Stance on Charity ISAs
In her response, Ms Blake highlighted that Gift Aid enables charities to claim a basic rate top-up on eligible donations and incentivises taxpayers to donate more. She noted that Gift Aid and Higher Rate Relief on Gift Aided donations provide over £2.5 billion of tax relief. On the possibility of introducing charity ISAs, she said: “The Government keeps all taxes and reliefs under review, and we remain committed to ensuring charities get the most out of the existing system, and to improving that system where we can.”
Upcoming Changes to ISA Rules
Key changes to ISA rules are set to take effect from April 2027. The current £20,000 annual ISA allowance will be cut to £12,000 for flexible use, with the remaining £8,000 restricted to stocks and shares ISAs only. Additionally, tax rates on interest earnings will increase by two percentage points across all tax bands: basic rate taxpayers will see their rate rise from 20% to 22%, higher rate from 40% to 42%, and additional rate from 45% to 47%.
