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Cutting Isa allowances will cost savers over £180,000′

Government plans to cut Isa allowances from April 2005 could cost regular Isa savers over £180,000 in tax-free interest over the course of their working lives, says Intelligent Finance.

IF is concerned that Chancellor Gordon Brown’s decision to cut the mini cash Isa allowance from £3,000 to £1,000 next year will hit savers at a time when the savings gap and personal debt are at record highs.

The firm’s research shows that more than 1.1 million investors from low to middle-income groups saved over £1,000 in an Isa in the last tax year.

Based on IF’s interest rate of 5.1 per cent, a person investing £3,000 a year into a mini-cash Isa over 20 years would earn an extra £30,000 of tax-free income, rising to £80,000 in lost tax-free interest over 30 years and £180,000 over 40 years.

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