There are several allowances that savers should know about
Savers may want to move around their savings ahead of the Autumn Budget. There have been concerns Chancellor Rachel Reeves could make major changes to ISAs in her Autumn Statement, which she will present before Parliament on Wednesday, November 26.
Rajan Lakhani, personal finance expert and head of money at savings app Plum, said there are some key things savers should do regardless of what changes come in the Budget. He said: “Whilst Rachel Reeves’ plan to slash the cash ISA allowance from £20,000 to £10,000 is still speculation at this point, it’s worth making sure you use up as much as possible of your cash ISA allowance to avoid tax on interest anyway, regardless of whether the policy materialises.
“If you have savings in a standard savings account that are taxable, now is the time to move them to an ISA. It’s also worth noting that if you have money you’d like to use to invest, then any gains made via a stocks & shares ISA are tax-free.”
What are the current ISA and savings tax-free allowance?
Under the current ISA allowance, you can deposit up to £20,000 each tax year into ISA accounts. This can be divided between cash ISAs and stocks and shares ISAs.
Any interest earnings or investment growth within an ISA wrapper is tax-free. Aside from your ISA savings, you may also be able to earn a certain amount of interest from your savings tax-free.
Basic rate taxpayers can earn up to £1,000 a year in interest tax-free, while those on the higher rate can earn £500 a year. You also get a starter rate for savings allowing you to earn £5,000 a year in interest, but this reduces for each £1 you earn above the £12,570 annual personal allowance. So if you earn £17,570 or more, you get no starter rate.
Mr Lakhani shared a practical tip for couples who have used up all their ISA and savings allowances. He said: “If you’ve maxed out your ISA allowance and saving allowance, you may want to consider reorganising your savings so they’re held by the partner who earns the least, as those who pay basic-rate tax have a much higher tax-free savings allowance of £1,000 and they will have their own £20,000 ISA allowance.”
However, the banking expert also warned not to make any hasty decisions ahead of Budget day. Mr Lakhani said: “It’s important to remember that the potential policies about the Budget that are making the headlines aren’t real decisions that have been implemented yet. And even if they do come to pass, often it will take a while for such a decision to come into effect, sometimes months, even.
“With that being said, people mustn’t make knee-jerk reactions and make decisions fuelled by speculation or panic. So it’s typically best to wait for official announcements, and check what changes affect you, pay attention to when the changes will be implemented and research your options for action.”
