‘Very important’ tax warning as ISA allowance could increase to £30,000 a year | Personal Finance | Finance

The Government could hike the ISA allowance to £30,000 a year as ministers are said to be looking at expanding the savings rules.

A person can currently invest £20,000 in ISAs each financial year without paying tax on any interest or income they derive from the savings account.

There are reports Chancellor Jeremy Hunt is considering an additional allowance, for ISA savings invested in businesses listed in the London Stock Exchange.

David Macdonald, founder of Path Financial, told Express.co.uk an increase to the allowance is arguably “overdue” as the last one was in April 2017.

He said: “The rate of increase has been well ahead of inflation over its history. Pension maximums went up unexpectedly from £40,000 to £60,000 recently so we could easily see another jump in line with that to £30,000.”

He encouraged people to make use of their ISA allowance as the current high interest rates mean savers are more likely to pay tax on their other savings.

Under the current rules, a basic rate taxpayer can earn up to £1,000 in interest each year and not pay tax, which decreases to £500 for higher rate earners, and to zero for those on the additional rate.

Mr Macdonald said: “Now, even £20,000 invested at five percent gets you close to paying tax on the interest as a basic-rate tax-payer so it means you have to pay attention and use the ISA allowance.

“For people prepared to invest in a stocks and shares ISA all gains will be free of capital gains tax (CGT) and all dividends will be free of income tax in an ISA.

“Since allowances on capital gains tax and dividends have come down in recent years then again it makes sheltering investments in an ISA very important. Really all savers would benefit from reduced taxes by utilising a higher ISA allowance.”

Adam Thrower, head of Savings at Shawbrook, said changes to ISA policy could be a “big boost for savers if done right”.

He said: “It would be great if the Government went further and increased the ISA allowance for all, including cash savers, not just those investing in British companies via stocks and shares.

“Data from CACI showed that more than three million (3,300,000) more non-ISA savings accounts were liable for tax on savings in April 2023, a huge increase from just 257,000 a year earlier, due to frozen personal tax thresholds.

“Increasing the ISA allowance will allow more people to take advantage of higher savings rates while protecting the income it generates from tax.”

Shawbrook saw a surge in customers opening ISAs with a 73 percent increase in people opening cash ISAs during the first five months of this year compared to the same period last year.

Funds deposited in cash ISAs also increased 55 percent from January to May 2023 compared to last year.

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