UK savers are being advised to take immediate action on their accounts amidst growing speculation that the Chancellor could significantly reduce a key tax-free savings allowance in the upcoming Autumn Budget.
Potential Threat to ISA Allowances
Chancellor Rachel Reeves is set to present her Autumn Statement to Parliament on Wednesday, November 26. There is mounting concern in financial circles that she may announce major reforms to Individual Savings Accounts (ISAs), with one prominent rumour suggesting the cash ISA allowance could be cut from £20,000 to £10,000.
Rajan Lakhani, a personal finance expert and head of money at the savings app Plum, has urged the public to be proactive. He stated that regardless of the final decision, it is wise for savers to maximise their current tax-free entitlements.
"Whilst Rachel Reeves' plan to slash the cash ISA allowance from £20,000 to £10,000 is still speculation at this point," Mr Lakhani said, "it’s worth making sure you use up as much as possible of your cash ISA allowance to avoid tax on interest anyway."
Understanding Your Current Allowances
Under the present rules, every saver has an annual ISA allowance of £20,000. This can be placed into a cash ISA, a stocks and shares ISA, or a combination of both. All interest earned or investment growth generated within an ISA is completely tax-free.
Additionally, there is a separate Personal Savings Allowance. This permits basic rate taxpayers to earn £1,000 in interest from standard savings accounts tax-free, while higher rate taxpayers can earn £500. There is also a starter rate for savings, but this reduces for those earning above the personal allowance of £12,570.
Practical Steps for Savers
Mr Lakhani provided clear guidance for those looking to protect their savings. "If you have savings in a standard savings account that are taxable, now is the time to move them to an ISA," he advised. He also highlighted the benefit of stocks and shares ISAs, noting that "any gains made via a stocks & shares ISA are tax-free."
For couples, he suggested a savvy financial manoeuvre: "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." This is because the basic-rate taxpayer in the partnership benefits from a higher £1,000 tax-free savings allowance and their own full £20,000 ISA allowance.
However, the expert also issued a crucial warning against panic-driven decisions. "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," he cautioned. He advised the public to wait for official announcements, understand which changes affect them, and note when any new rules would actually come into force before making major financial moves.
