Key changes to savings rules are coming in soon
Savers have been urged to take action now ahead of a critical deadline. A savings expert has also voiced concerns that people often don’t understand the rules that apply to their savings and could needlessly be paying tax.
The tax year ends on April 5, marking the final opportunity to utilise your ISA allowance for the current year. This permits you to deposit up to £20,000 annually into these tax-free accounts. You can allocate the allowance as you wish between stocks and shares ISAs and cash ISAs, though these regulations are set to change. From April 2027, you will only be able to use up to £12,000 of the allowance at your discretion, whilst the remaining £8,000 must be directed towards investment-based accounts. Savers aged 65 and above will be exempt from the new regulations and will maintain the current allowance.
Josh Raymond, UK managing director at savings and investing platform XTB, urged people to check over their accounts now. He said: “The simple reality is that if you don’t use your ISA allowance by the end of the tax year, you lose it.
“You get a fresh £20,000 each year, but any unused allowance doesn’t roll over – which is why I always encourage people to use as much of it as they realistically can.” The expert noted that even if you can only manage a relatively modest deposit, it’s worthwhile doing so.
He said: “That doesn’t mean you need to put in the full £20,000. Even £20 inside an ISA is better than £20 held elsewhere – as anything earned within the ISA is tax free. Over time, those small decisions add up. For most people, it’s about building the habit of using the allowance each year, not trying to maximise it in one go.”
Mr Raymond also highlighted one of the “biggest issues in UK savings today” is that people keep their money in conventional savings accounts when they could be getting tax-free growth in ISAs. He warned: “Many people leave cash in traditional savings accounts without realising that once they exceed their personal savings allowance, the interest becomes taxable.
“ISAs are one of the most generous and straightforward tax‐efficient products available, yet awareness remains surprisingly low.” If you are a basic rate taxpayer, outside of ISAs which are entirely tax-exempt, you can earn up to £1,000 in interest each year tax-free.
A lot of people are missing out
This reduces to £500 for higher rate taxpayers, while those on the higher rate get no allowance. Mr Raymond said: “There are just over 10 million cash ISAs and around 4 million stocks and shares ISAs in the UK, compared with an adult population of more than 50 million. That gap suggests a lot of people are missing out.”
He also drew attention to another harsh reality if your savings aren’t performing as well as they could. The expert said: “There’s also a more basic issue. Inflation is still around 3 percent, so if your savings aren’t earning at least that, their real value is falling.
“ISAs help address both problems by offering a tax‐free environment where people can protect and grow their money more effectively.”
The impact of the Iran war
Savers banking on investment-based accounts to grow their funds might be worried about the ongoing conflict in Iran. The fallout from the military strikes has already included oil prices soaring.
Mr Raymond encouraged people to stay the course and think long term. He said: “Geopolitical events can create short‐term volatility, and it’s natural for markets to react to uncertainty.
But while this can be unsettling, especially when values move quickly – the most important thing for long‐term investors is perspective. Markets have weathered wars, political crises and economic shocks many times before, and over time they have continued to grow.
“Trying to predict peaks and bottoms is incredibly difficult, which is why consistency matters more than timing.” He offered some practical advice for those feeling uneasy about the conflict.
Mr Raymond said: “For those feeling nervous, flexibility and diversification are key. Holding some assets in cash, spreading investments across sectors, or focusing on more defensive areas can all help manage risk.
“But in general, staying invested and sticking to a long‐term plan has historically been more effective than reacting to short‐term news.”
