Latest news with #ISAs
Business Mayor
23-05-2025
- Business
- Business Mayor
HMRC to send out 6 million unexpected bills to ‘rule break' UK households
Millions of households across the UK could be set for a HMRC letter after they accidentally breached a 2016 rule. In January, more than six million accounts exceeded the Personal Savings Allowance (PSA) threshold, designed to let savers earn a limited amount of interest tax-free. As a result, millions of people could be set for an unexpected tax bill in the coming months. Sally Conway, savings expert at Shawbrook, said: 'Without careful consideration, savers could face a shock tax bill on their nest eggs. With savers still taking advantage of competitive interest rates, many savers could be sleepwalking into a tax bill on their interest.' She added: 'This is particularly relevant for higher-rate taxpayers, who only get £500 tax-free, and additional-rate taxpayers, who get none. 'For example, a higher-rate taxpayer with £12,000 in a non-ISA account earning 4.30% could exceed their tax-free allowance. 'There are currently over five million more savings accounts at risk of tax than there were just over three years ago. This outlines just how much the frozen threshold has impacted savers who aren't making use of ISAs. 'It can be a great way to boost savings in a tax-efficient manner. Additionally, exploring options beyond major banks might lead to better interest rates, often specialist savings banks can be savers' best-kept secret.' The personal savings allowance allows taxpayers to earn £1,000 of interest tax free each year, but this is slashed to £500 for higher rate taxpayers and is zero for those paying 45p tax. Frozen income tax thresholds are causing more and more people to pay the higher rate of tax, meaning that they are unwittingly reducing their personal savings allowance by 50%. As a result, those earning more than £50,270 will lose 40 per cent to tax on any interest of more than £500 per year. The tax-free allowance relates to interest earned in bank and building societies, savings and credit union accounts, peer-to-peer lending, trust funds and some life insurance contracts. For people unsure about whether they are likely to owe tax to HMRC or wondering how much they will be obligated to pay, the government's website allows you to check using their tax calculating tool. READ SOURCE
Bloomberg
20-05-2025
- Business
- Bloomberg
UK Considers Reducing Cash Portion of £20,000 ISA Allowance
The UK government is planning to reduce the amount of cash that savers can put in tax-free accounts, according to a Treasury minister. Britons can currently add as much as £20,000 ($26,724) a year to Individual Savings Accounts, choosing whether to keep it as cash, investments or a blend of the two.
The Independent
20-05-2025
- Business
- The Independent
Rachel Reeves U-turns on plan to cut ISA limit to £4,000
Rachel Reeves has confirmed she will not reduce the £20,000 annual limit for Individual Savings Accounts (ISAs) in a move set to benefit savers across the country. The chancellor had faced pressure from banks not press ahead with plans to cut the limit in a bid to kickstart growth, which is one of the government's key objectives. Earlier this year Emma Reynolds, the economic secretary, pointed out 'hundreds of billions of pounds in cash ISAs' were preventing money from being invested in the London Stock Exchange, fuelling speculation the annual limit could be cut. But Ms Reeves told the BBC: 'I'm not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that's in a pension or in their day-to-day savings. 'And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people. But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.' Cash ISAs, which are held by 18m people and have a combined total of almost £50bn in them, allow households to save without paying income tax on the interest. But there are also Lifetime Isas (LISAs) for property, innovative finance ISAs and stocks and shares ISAs for investing - and it is the latter which Ms Reeves hopes to encourage more people to use. Any money saved, generated, earned or created within any ISA is tax-free. Over longer periods of time, investing in equities outperforms holding cash, as interest rates can remain low for prolonged periods of time, while stock markets have historically grown. However, shares, funds and other types of investing offers no guaranteed return and losing money is possible - while cash kept in bank accounts offers a fixed and familiar number and will not go down in number unless spent. Building societies have also pointed out how they utilise some of the money saved in cash ISAs to back the mortgages they hold, and removing a portion of that cash could limit how much they can lend in future. Changes to the cash ISA or the overall ISA model could still be forthcoming later this year. Simplification of the ecosystem has been pushed for over the years, including combining the cash and investing ISAs into a single product. 'One of the reasons why we're looking at advice and guidance that financial firms can give to their customers is to make sure that people are making informed decisions about how to invest their money, whether that's their pension savings or their ISA savings,' Ms Reeves added.
Daily Mirror
11-05-2025
- Business
- Daily Mirror
HMRC to contact 887,000 savers with over £3,500 in the bank
The taxman is reminding people that while their savings are safe, the interest they earn on them is taxable Almost 900,000 savers across the UK might be in for a surprise as they could soon receive letters from HMRC warning them about an impending tax bill on their savings interest. Although savings themselves aren't taxed, the interest they generate can be, particularly now with higher rates pushing more people over the Personal Savings Allowance. At present, basic-rate taxpayers can earn up to £1,000 of interest tax-free each year, while higher-rate taxpayers have a limit of £500. Additional-rate taxpayers don't get any allowance. This issue is particularly problematic for those using fixed-rate savings accounts, where money is locked away and interest is paid out in a lump sum at maturity. As HMRC taxes interest in the year it becomes accessible, savers using multi-year deals may find that accumulated payouts push them into taxable territory. For instance, a higher-rate taxpayer with just £3,500 in a three-year fixed-rate account paying 5% could exceed their allowance. Basic-rate taxpayers would face the same issue with around £7,000 under similar conditions. Research by Paragon Bank reveals that 2.4 million fixed-term, non-ISA savings accounts will mature in the next three months, with 887,000 of those generating enough interest to trigger a tax liability, reports the Express. Laura Suter, director of personal finance at AJ Bell, has cautioned savers: "Many people won't realise that [fixed rate accounts] could leave them with a tax headache in the future. You are taxed on the interest on your savings when it is accessible by you. So if you pick a fixed-rate savings account that pays out all the interest at maturity, for tax purposes all of that interest will be counted in one tax year." She added that the accumulated interest might push someone over their Personal Savings Allowance: "This means that the interest from just one account could take you over your Personal Savings Allowance on its own." To escape this tax trap, Ms Suter recommends choosing accounts with monthly or annual interest payments: "This means it is spread across different tax years. Or you can opt for a fixed-term ISA savings account, where you won't pay any tax on the interest." Currently, Individual Savings Accounts (ISAs) enable UK savers to protect up to £20,000 annually from taxes. Derek Sprawling, saving chief at Paragon Bank, pointed out the potential tax implications for non-ISA fixed term account holders: "Over half a million non-ISA fixed term accounts are maturing with sufficient interest to incur a tax bill for the holder and I would expect those savers to consider switching to an ISA variant if they don't already utilise their annual tax-free allowance."
The Sun
06-05-2025
- Business
- The Sun
Nationwide to make big change to millions of bank accounts in weeks – and customers need to check now
NATIONWIDE is making a big change to millions of accounts in weeks leaving savers worse off. The major building society is cutting interest rates on over 60 savings accounts from June 1. The move comes after the Bank of England slashed the base rate from 4.75% to 4.5% in February. The base rate affects the interest rates banks offer to customers on a range of products including savings accounts and mortgages. A lower base rate signals good news for mortgage holders but has a negative knock-on effect on savers who usually see their rates drop. Nationwide is cutting rates on 63 of its savings accounts on June 1, from ISAs to easy access savings accounts. Whether you are impacted and how much by depends on the type of account you have, plus how many withdrawals you can make from the account per year. For example, the interest rate on Nationwide's Triple Access ISA is currently 2.15% if you can make three or fewer withdrawals a year but from June 1 this will fall to 1.95%. If you've got the same savings account and can make four or more withdrawals each year the rate is currently 1.75% but will fall to 1.50% from June 1. Meanwhile, if you have a Single Access ISA and can make one or fewer withdrawals each year, the rate is dropping from 3.55% to 3.35%. However, if you can make two or fewer withdrawals each year, your rate will fall from 1.75% to 1.50%. Tom Riley, Nationwide's director of retail products, said the building society had "worked hard" to limit any reductions in savings rates. He added: "We have not made any changes to our Children's FlexOne Saver and those savings which encourage a savings habit. "Following these changes, our savings range will remain competitive and continue to pay more than the market average, giving savers every reason to put their money with Nationwide." Not all savers will see their interest rates fall from June 1, including those with child savings accounts. For example, if you've got a Branch Smart Limited Child account and are allowed to make two or more withdrawals from it each year, the interest rate will stay at 1.80%. If the interest rate on one of your Nationwide savings accounts is being cut, you should receive notification from the building society telling you. This communication may come via email. For more information on what specific accounts will see their interest rates drop, go to What you can do if you're affected Nationwide customers set to see their savings account interest rates drop from June 1 could shop around for a different deal and switch. According to Chip and Sidekick are offering the best easy access account rates of 4.76%. Meanwhile, the best rate on an easy access Cash ISA is with Trading 212 which is offering a 5.07% rate. Of course, whenever you're looking to switch to a different savings rate, make sure you factor in everything before deciding to change. It's not just the headline savings rate you should keep an eye out for, but any withdrawal penalties, when interest is paid and if the account comes with a temporary bonus rate. A lot of banks and building societies offering bonus interest rates which last for a set period but then drop to a lower rate. Think about the type of savings account you want to switch to as well. If you've currently got an easy access savings account with Nationwide it could be worth switching to an ISA. The main advantage to ISAs is that you aren't taxed on any earnings whereas with a standard savings account you are taxed on interest earned above your Personal Savings Allowance (PSA). This is either £0, £500 or £1,000 depending on your income tax band. SAVING ACCOUNT TYPES THERE are four types of savings accounts fixed, notice, easy access, and regular savers. Separately, there are ISAs or individual savings accounts which allow individuals to save up to £20,000 a year tax-free. But we've rounded up the main types of conventional savings accounts below. FIXED-RATE A fixed-rate savings account or fixed-rate bond offers some of the highest interest rates but comes at the cost of being unable to withdraw your cash within the agreed term. This means that your money is locked in, so even if interest rates increase you are unable to move your money and switch to a better account. Some providers give the option to withdraw, but it comes with a hefty fee. NOTICE Notice accounts offer slightly lower rates in exchange for more flexibility when accessing your cash. These accounts don't lock your cash away for as long as a typical fixed bond account. You'll need to give advance notice to your bank - up to 180 days in some cases - before you can make a withdrawal or you'll lose the interest. EASY-ACCESS An easy-access account does what it says on the tin and usually allows unlimited cash withdrawals. These accounts tend to offer lower returns, but they are a good option if you want the freedom to move your money without being charged a penalty fee. REGULAR SAVER These accounts pay some of the best returns as long as you pay in a set amount each month. You'll usually need to hold a current account with providers to access the best rates. However, if you have a lot of money to save, these accounts often come with monthly deposit limits. In other news, economists are predicting interest rates to fall at their fastest pace since the 2008 financial crash this year. The dropping rates spell bad news for savers who will likely see interest rates on their savings account fall further.
