Savers have been urged to think through their finances ahead of the Autumn Budget
People hoping income tax will not increase in the Autumn Budget could end up paying more tax anyway. There were reports Labour was looking at increasing income tax in the Autumn Statement, set for November 26.
But even if Chancellor Rachel Reeves decides to keep the tax at its current level, some savers could see their tax bills go up. Jeremy Cox, head of Strategy at Coventry Building Society, said: “Our members, particularly those who are retired and on fixed incomes, will be relieved if income tax rates are not increased later this month.
“But if income tax thresholds are frozen for longer and cash ISA allowances are reduced, many could end up paying more income tax anyway, including on their cash savings.”
You can currently deposit up to £20,000 a year into ISAs. Any interest earnings or investment growth within an ISA are tax-free.
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There have been rumours the Chancellor could introduce a £4,000 cap on cash ISA savings, to encourage people to get into investing more. Mr Cox warned that even before any changes in the Budget, many people face rising tax bills in the future.
He said: “With income tax thresholds frozen, many more people were already in line to be higher rate taxpayers next year.” Moving into the higher rate also means you could pay more tax on your savings. Those on the basic rate for income tax can earn up to £1,000 a year in interest tax-free, aside from your tax-exempt ISA savings.
But once you move to the higher rate, this is cut in half to just £500. This means you could pay an extra £200 in tax if your interest earnings were £1,000 or more. Derence Lee, chief finance officer at ISA provider Shepherds Friendly, warned savers not to act rashly ahead of any changes in the Budget.
He said: “Acting on speculation alone can carry risks. Staying informed and reviewing your current savings, pensions, and investments to understand their tax-efficiency can help you make considered decisions.
“Frozen thresholds may result in some individuals paying higher rates of tax, but the impact will vary depending on individual circumstances. Once the budget is announced, take time to digest the details before making any major financial decisions.”
He said you can always talk to a financial advisor if you are unsure what to do in light of any policy changes. Mr Lee spoke about what could be changed in the Autumn Statement: “Areas such as income tax thresholds, capital gains, inheritance tax, and pension reliefs could be under review as the Chancellor considers ways to manage public finances and support economic growth.
“There may also be adjustments to allowances, ISA limits, or pension reliefs as part of wider fiscal measures.”
