Latest news with #IndividualSavingsAccounts
Yahoo
20-05-2025
- Business
- Yahoo
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. Sign in to access your portfolio
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."
Yahoo
04-04-2025
- Business
- Yahoo
UK tax incentives for savings and investments to reach £41.2bn
Tax incentives for savings and investments in the UK are forecast to rise to £41.2bn ($54.12bn) in the 2024-25 tax year, marking a 7% increase from £38.7bn in 2023-24, according to new research by Bowmore Financial Planning. This increase is attributed to a 22% rise in tax breaks through Individual Savings Accounts (ISAs), which are set to grow from £7.7bn in 2023-24 to £9.4bn in 2024-25. The value of ISAs has been amplified due to recent cuts in the tax-free allowance for capital gains made outside of an ISA, making the capital gains tax (CGT) exemption for gains within an ISA more valuable. In April 2023, the annual tax-free CGT allowance was reduced from £12,300 to £6,000 and has been halved again to £3,000 for the tax year 2024-25. Despite these reductions, Bowmore highlights that UK savers and investors still have access to generous tax breaks. However, they caution that with the upcoming spring statement, it is advisable for investors to use these tax breaks while they are available, as they could be subject to changes or removal by the government in the future. A portion of personal finance tax breaks, amounting to 71% or £29.5bn, are related to pension schemes in the 2024-25 tax year. Bowmore Financial Planning CEO Mark Incledon emphasises that pensions should continue to be the primary savings vehicle for UK savers. Other personal finance tax incentives that have seen increases over the past year include Venture Capital Trusts, which are expected to rise to £330m in 2024-25 from £320m in the previous year. Incledon said: 'Higher CGT means it is more important than ever for investors to maximise the tax incentives available through ISAs. As CGT rates go up, avoiding these avoidable taxes becomes even more difficult - and with the government's spring statement rapidly approaching, there is no guarantee that these incentives will last.' 'The autumn Budget has shown the government won't shy away from increasing taxes on savings and investments, meaning It has become even more vital to take advantage of tax reliefs.' 'By prioritising action now, taxpayers can shelter their savings and investments from the worst of these tax increases and keep more of their gains in the long term.' In July 2024 Bowmore Financial Planning reported the number of taxpayers caught in the UK's 60% 'tax trap' for high earners rose by 23% over the previous 12 months, from 436,000 to 537,000. "UK tax incentives for savings and investments to reach £41.2bn" was originally created and published by The Accountant, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Sign in to access your portfolio
The Independent
27-03-2025
- Business
- The Independent
How to boost your finances before the end of the tax year
The end of the UK tax year (April 5) is a crucial time for savers to review and optimise their finances. People should maximise contributions to Individual Savings Accounts (ISAs) and Junior ISAs before the cut-off to benefit from tax-free growth. Those planning to buy a first home should consider a Lifetime ISA, which offers a 25 per cent government bonus on deposits up to £4,000 annually. Savers can also take advantage of tax relief on pension contributions, which can significantly enhance long-term savings. You should also ensure you've maximised your state pension by addressing any gaps in National Insurance contributions before the April 5 deadline.
The Independent
11-03-2025
- Business
- The Independent
How much do I need in an ISA to earn £10,000 of passive income a year?
Many of us dream of holding an investment portfolio that delivers enough passive income every year to significantly improve our quality of life. While that goal might feel distant, with a consistent approach to Individual Savings Accounts (Isas) contributions it can be surprisingly accessible. That's thanks to two key tax benefits: Of course, building this dream investment portfolio still requires patience and commitment – but it could be easier than you'd expect. Here's one way that it can be done. Can you earn £10,000 a year from a cash ISA? A cash ISA can only deliver income in the form of interest. Currently, the best interest rates on cash ISAs are up to 5 per cent. So, if you have £200,000 or more in a top cash ISA, you could expect to earn £10,000 over one year, tax free. However, interest rates change frequently, and aren't expected to remain at this level for long. Rates can fall to close to zero and so interest alone cannot be relied upon to deliver a consistent annual income over the long term. It's easy to see that withdrawing £10,000 per year from a cash ISA worth £200,000 – and earning no interest – would exhaust the funds in 20 years. Add in that Cash Isas are currently the subject of a debate which could see allowances cut and it may soon take a lot longer to build up that level of savings in one in any case. Can you earn £10,000 a year from a stocks and shares ISA? A stocks and shares Isa on the other hand can generate income in several different ways: Stocks and shares Isas can also deliver capital gains on the sale of shares and other investments. While these gains aren't technically considered passive income, they are part of your total return and can be withdrawn and spent just as income can - or reinvested to try to compound your gains. Investment returns are not guaranteed. However, over periods of many years, a well-managed portfolio of diversified investments tends to deliver an average return of between 4 per cent and 8 per cent, depending on your chosen risk level. In some years, your returns may be higher. In other years, your returns may be lower, or even negative. So, you can't plan for your Isa to consistently deliver a total return of £10,000 or more – but you can plan to consistently withdraw £10,000 a year with a reasonable expectation that your savings will not be exhausted in your lifetime. How much do you need in an ISA to earn £10,000 a year? Experts generally agree that, in normal market conditions, you can withdraw 4 per cent of a tax-efficient investment portfolio's value every year without exhausting it. On this basis, you'd need to reach an Isa value of £250,000. Of course, this should be considered a guide rather than a hard-and-fast rule. Market conditions are rarely, if ever, truly normal so it's sensible to prepare for a range of worse scenarios, or work with a qualified financial adviser to plan your withdrawals. Currently, the Isa annual allowance is £20,000 a year. If you're able to pay in £20,000 today, and then another £20,000 every time your allowance resets (starting on 6 April 2025), you'd exceed £250,000 in 2036 – or sooner, if your investments performed well. For most people, it's far more realistic to reach £250,000 by consistently contributing smaller, regular amounts, and staying invested. Assuming an annual growth rate of 5 per cent, here's how long it would take to accumulate £250,000 at different contribution levels: £1,000 a month – around 15 years £900 a month – around 16 years £800 a month – around 17 years £700 a month – around 19 years £600 a month – around 21 years £500 a month – around 23 years £400 a month – around 26 years £300 a month – around 30 years It's worth contrasting the fastest and slowest of these approaches. Person A, at £1,000 a month, will contribute more than £170,000 before reaching their goal. Person B, at £300 a month – 70 per cent less – will reach the same goal in twice the time, but after contributing less than £110,000. This is the magic of compounding: patience acts as a multiplier. How should you invest your ISA to earn £10,000 a year? When looking at periods of 15 to 30 years, the most reliable investment strategy is proven: choose a diversified portfolio of investments that aligns with your risk appetite, and stay invested through any market fluctuations that occur. There's no need to constantly monitor performance, take gambles, or add leverage – in fact, research suggests that historically the 'set and forget' approach has delivered better results for most investors. That tends to involve simply reviewing your portfolio periodically, for example once a year, to ensure it remains aligned with your goals and risk let time do the rest. When investing, your capital is at risk and you may get back less than invested. Past performance doesn't guarantee future results.
