Britons are turning to cash ISAs with millions “worrying about tax on savings” ahead of potential fiscal changes being implemented by the Labour Government.
Chancellor Rachel Reeves is understood to be considering dramatic reforms to cash ISAs that could see the annual tax-free allowance slashed from £20,000 to £4,000.
The potential changes follow recent discussions between the Chancellor and senior City executives at 11 Downing Street.
Treasury officials have confirmed that Reeves is “listening to ideas” about simplifying tax-free savings, in a move that could fundamentally alter how millions of Britons save their money.
It is understood that talks focused on ways to boost investment from UK savers and drive economic growth. The potential reforms come as cash ISAs hit record popularity, with savers depositing £49.8billion in 2024.
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Britons are “worried about a tax on savings”, according to analysts
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Current Cash ISA rates remain attractive at around 4.5 per cent, despite falling from their peak.
The surge in deposits coincides with Office for Budget Responsibility estimates that 2.5 million additional higher-rate taxpayers will emerge in the new tax year, compared to if tax thresholds had risen with inflation.
This increase in higher-rate taxpayers has made tax-efficient savings more crucial for millions of Britons.
Sarah Coles, head of personal finance at Hargreaves Lansdown, explained the surge in Cash ISA popularity.
“The OBR estimates that there will be 2.5 million extra higher-rate taxpayers in the new tax year than there would’ve been if tax thresholds had risen with inflation,” she said.
“It means many more people worrying about tax on savings, which has pushed Cash ISAs up the agenda for millions of savers. As a result, the market has grown at a phenomenal pace.”
Coles emphasised that current discussions about changes remain “pure speculation and rumour at the moment.”
City executives have proposed significant changes to the current ISA system during the Downing Street meetings.
Fund managers are pushing for reforms that would encourage more investment from UK savers.
Fidelity International, which manages £710billion in assets, has called for the consolidation of the ISA regime into a single type.
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Britons are looking for ways to avoid losing their hard-earned cash to the tax man
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The theory behind potential cash ISA reforms suggests that limiting cash savings could redirect more money towards Stocks and Shares ISAs, potentially benefiting British businesses.
However, Coles warns that “axing the Cash ISA wouldn’t necessarily turn savers into investors overnight.” Amid the uncertainty, Coles advises savers to focus on their individual needs rather than speculation.
“Right now, the Cash ISA rumours are just that – rumours,” she stated. She recommends savers concentrate on securing the best possible rates available.
“There are some decent rates out there at the moment, and if you don’t want to go hunting for them, platforms like the HL Cash ISA can help,” she noted. These platforms offer access to competitive rates from multiple banks through a single service.
