Any cut to cash Isa allowance ‘may not prompt savers to boost their investments'
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The Independent
4 days ago
- The Independent
Rachel Reeves gives green light for tax crackdown on savings accounts
Savers could see tax due on interest payments deducted directly from their salaries in future after Rachel Reeves approved rule changes on banks sharing customer details. The chancellor wants it to be easier for HMRC to charge people the tax due on their savings, with an estimated 300,000 more people than five years ago now passing the threshold for when that payment kicks in. Currently, basic rate taxpayers have a £1,000 personal allowance on earning interest tax-free. This drops to £500 for higher rate taxpayers and zero for additional rate. There's also a £5,000 'starting rate' allowance but this drops with increased earnings and is wiped out for people who earn above £17,570 a year. With wages rising, fiscal drag has meant many people have moved into the next tax band and therefore their tax-free allowance on savings interest is cut - which can lead to a hefty or unexpected tax bill. The best way for savers to avoid such a scenario is, first and foremost, to ensure they are using a Cash ISA as their primary savings account, in which all earnings are tax-free. A £20,000 per person annual allowance applies to products across all ISA types, including investing ISAs or lifetime ISAs, for pensions or first-time buyers. AJ Bell calculated British people would earn around £20bn from non-ISA cash accounts this year, with HMRC expecting to collect more than £6bn in tax from savers. Letters will be sent with tax-code changes to those who face automatic deductions - meaning an unwelcome surprise in lower-than-expected take-home pay is on the agenda. 'For years, most savers didn't give a second thought to paying tax on their interest – rates were low and the Personal Savings Allowance offered a generous cushion. But the landscape has changed rapidly. A combination of rising interest rates, frozen tax thresholds, more people being pushed into higher tax bands, and years of cash ISAs being overlooked means many are now being pulled into the tax net for the first time,' said AJ Bell's Laura Suter, director of personal finance. 'For those who have moved their money to better-paying accounts and find themselves breaching the tax-free limit, many won't realise until the taxman catches up. 'Self-assessment filers will need to declare any interest earned, but for those on PAYE, HMRC will collect the data directly from their payslip by adjusting their tax code. That can lead to a nasty surprise when people see their take-home pay suddenly fall.' Banks will need to ask regular savings accounts customers for their National Insurance numbers starting from 2027, reports the Telegraph, which will then be passed on to HMRC. Once the rule changes become passed into legislation, expected next year, customers should not need to do anything further unless more changes are announced. Interest earned is already shared with HMRC but up to 20 per cent of it is 'unreadable', a report said, so tax cannot automatically be collected. The government has previously said changes will cost £35m to implement, while banks likewise face huge costs to make systemic alterations. An HMRC spokesperson said: 'These reforms will make it easier for customers to get their tax right first time, including paying tax on savings income, by improving our ability to match third-party data to taxpayer records. Making better use of data will also help us prevent error and fraud on behalf of the honest majority.'
Daily Mail
4 days ago
- Daily Mail
Why you need to act now if you have one of these top Isas
Savers who opened an Isa paying a top rate are being warned to check if it has slumped in the aftermath of the Bank of England rate cut yesterday. Savings rates on easy-access accounts and Isas have already begun to fall following base rate dropping from 4.25 per cent to 4 per cent. Experts warned this would be bad news for savers as the rate on their easy-access accounts – both Isas and ordinary – will fall. The day before the base rate was cut, CMC Invest* - offering a 5.44 per cent interest rate - moved to scrap its three month bonus of 0.85 per cent, bringing the underlying rate to 4.59 per cent. Savers who open the account today will get this rate and it it still one of the most competitive cash Isa rates while also being a flexible Isa. But it is existing savers who will likely be hit hardest by easy-access rates plummeting, as savings providers tend to offer higher rates to new savers to reel them in. New issues of an Isa often come with similar names to a previous account, or the same name and a different issue number. There are 2,177 closed easy-access ordinary and cash Isa accounts, according to rates scrutineer Moneyfacts, up from 2,089 a year ago. For example, savers who opened Trading 212's top easy-access Isa* when it was offering 5.1 per cent to new savers will find that their rate today is just 3.85 per cent, having been cut several times due to the base rate falling. The savings and investment provider emailed savers to warn them that, as of today, their rate would fall from 4.1 per cent to 3.85 per cent, due to the Bank of England cutting the base rate. New customers who open the Trading 212 cash Isa will get a far more competitive rate of 4.67 per cent. Meanwhile, Coventry Building Society, the second largest building society in the UK, closed its Four Access Saver offering 4.5 per cent to new savers and Secure Trust shut its easy-access account at 4.4 per cent replacing it with a new version at 4.2 per cent. Cynergy Bank has also cut its Isa rate from 4.2 per cent to 3.9 per cent. Though these rates still outpace CPI inflation of 3.6 per cent by a wide margin and are higher than the average easy-access Isa rate paying 2.89 per cent, savers - especially those who have been with their Isa provider for some time - can get yet better returns. Rachel Springall of rates scrutineer Moneyfacts Compare says: 'Some of the top cash Isa rates apply a heavy bonus, so it's essential savers switch before the rate plummets. Savers who have been stung by their older issue rate being cut should look for an Isa that offers a competitive rate, has as few restrictions as possible and offers a rate that plays over CPI of 3.6 per cent. Rachel Springall says: 'Savers could find their variable rate account no longer outpaces inflation, especially if CPI rises in the coming months. 'Signing up to rate alerts and newsletters to get the latest rate moves is wise, as is checking pots not just now but at the start of September, in case other brands hold off cutting rates until then.'
Daily Mail
4 days ago
- Daily Mail
I have £30,000 in a Sharesave scheme: How can I avoid tax when I sell the company stock?
For the past three years I've been paying £500 per month into my company's Sharesave scheme which is due to finish in August. The option price is 30p per share but the shares are currently at 50p so I definitely plan to take the shares. However, the price can be volatile and I don't like having so many eggs in one basket - so I want immediately sell and put the money into ETFs in my stocks and shares Isa. I'm keen to avoid capital gains tax. Can you suggest the most tax efficient options to sell the shares and get them into mine and my partner's Isas? I understand there's a mechanism to get the shares into my Isa within 90 days of taking them and selling from there - but the shares are worth about £30,000, so above the £20,000 Isa allowance. Can I put some of them into the Isa up to my allowance and sell the rest outside of the Isa to minimise CGT? Could gifting some to my partner help? And given the relatively low value, can I achieve this without paying a financial advisor to sort it out for me? G.G, via email > How capital gains tax works: The rates you pay - and how to cut your bill This reader is worried about their potential capital gains tax liability as a result of the £30,000 in the Sharesave scheme Harvey Dorset, of This is Money, replies: Sharesave schemes, also knows as Save As You Earn, or SAYE, are programmes offered by employers that allow staff to buy shares in the company they work for at a fixed price. When the scheme matures, savers can either purchase the shares at the option price agreed at the start of the scheme, meaning they could gain shares at a discount, or can withdraw the cash. In your case, the value of the shares have increased by around 66 per cent from the option price, so taking these shares and selling them on could provide a healthy return. With £30,000 saved into the scheme, however, you are right that you could face CGT liability when selling your shares. Assuming your Isa allowance has not yet been touched this financial year, you will still only be able to move £20,000 worth of shares into the tax wrapper. That said, there may be ways to cut down any CGT bill, or even avoid it entirely when you do cash i. This is Money spoke to expert financial adviser Paul Crossan to find out what options might be open to you to slash a potential tax bill. Paul Crossan, senior financial planner at Hargreaves Lansdown, replies: Sharesave plans are an excellent way to build savings. They allow employees to buy company shares at a fixed price and include a valuable safety net, because if the share price falls below the set price, employees can still choose to take back their full savings as cash – usually with interest. That said, you are absolutely right to be cautious about 'having so many eggs in one basket'. Once the scheme has matured and you own the shares, the risk profile changes dramatically, from a situation where the worst outcome is getting your money back to one where you now own volatile, high-risk single company shares. Depending on the level of diversification you have within your broader portfolio, this may not be right for you. If you decide to diversify, you can still protect your investment from tax. You can transfer up to £20,000 of the proceeds from your Sharesave scheme into an Isa - or potentially a larger amount subject to individual contribution limits into a pension such as a Sipp within 90 days of maturity, without being subject to capital gains tax on the move. Once inside a tax–efficient wrapper, the shares can be held or sold without incurring CGT, and the proceeds can be reinvested into more diversified investments. If £18,000 has been saved over three years, your gain may be around £12,000. Using a £20,000 Isa allowance could shelter roughly two–thirds from CGT. If you decide not to use a pension, your £3,000 annual CGT exemption, if available, could help offset the remaining gain and if necessary, use the CGT annual allowance over subsequent tax years - although this may mean carrying the risk of holding the single stock for longer. In response to your query about gifting to a partner, HM Revenue and Customs generally allows shares to be gifted to a spouse or civil partner without triggering an immediate CGT charge. This could enable you to consider using their £3,000 annual CGT exemption. Consider their tax status, which may be lower than yours, before disposal. They would inherit your original option price of 30p per share as their base cost and may then face CGT on any future gains when selling. Once gifted as they are then the new owner of the money, they're free to decide what to do next, whether that's using the 'bed and Isa' process to fund their own Isa, make a pension contribution, or simply access the funds as they wish. Finally, you ask whether this can be done without advice. The simple answer is yes—many organisations, such as Hargreaves Lansdown, are equipped to support this process and your employer may already have a company it uses. However, if you are unsure about whether a particular investment wrapper such as an Isa or pension is suitable for your needs, it may be worth speaking to a financial adviser. An adviser will assess your wider financial situation, not just the Sharesave scheme, and help explore appropriate options in depth.
