All interest earnings or investment growth within an ISA is tax-free
Savers are being told how they can get more money from their ISAs with an account switch. The news comes amid massive speculation about changes to ISAs in the upcoming Budget next month.
Labour has today been urged to double the ISA allowance as many savers could get much more out of their savings. There has been speculation Chancellor Rachel Reeves could slash the ISA allowance in the Autumn Budget.
But a bank boss has urged her to change the policy in the opposite direction. You can currently deposit up to £20,000 a year into ISAs, while retaining their tax-free status. With ISAs, you do not have to pay any tax on any interest earnings or investment growth within the account.
Danny Haynes, chief product officer at Kroo Bank, said: “We would suggest that, as soon as public finances allow, the tax-free ISA limit should be doubled to encourage saving and investments.” The bank urged the Government to bring in some new measures to help savers “put their money to work” through savings accounts, ISAs and investments.
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Mr Haynes said: “The Bank of England found that over £1trillion of the public’s money is earning less than 2 percent interest – making wealth growth difficult, and harming business success as a result. This is the primary issue that must be addressed, especially in times of economic uncertainty.”
Boost your savings by £240
If you had £10,000 in savings in an account at 2 percent, you would earn £200 in interest over the course of a year. However, there are several easy access ISAs available paying more than 4.4 percent.
If you moved your funds into an account paying 4.4 percent instead, you would earn £440, adding an extra £240 to your savings. Mr Haynes suggested that the Chancellor might consider policies such as halving the £20,000 ISA allowance for cash holdings, or introducing a minimum investment in UK companies for those with a stocks and shares ISA.
He expressed his concerns about such changes: “The UK’s economy is in a complex situation, and measures to increase revenue into public finances and boost investment levels in the UK stock market are understandably attractive. However such significant reforms to two of the public’s most reliable and successful methods of saving risks damaging the very economy that the measures are designed to bolster.
“Encouraging investment in UK markets is a vital and commendable aim – but this must be achieved by making such investments as attractive as possible, not by potentially disruptive, enforcing measures. Savers faced with a reduced Cash ISA tax-free allowance, and a Stocks and Shares ISA that has been stripped of its current freedom from geographical limitations, will simply be discouraged from these tried methods of saving and investing – and will potentially look into riskier, often overseas-based assets as alternatives.”
At present, you can split your £20,000 ISA allowance between cash ISAs and stocks and shares ISAs. Asked previously about plans for policy changes in the Budget, a spokesperson said: “We do not comment on speculation around future changes to tax policy.”
Chancellor Rachel Reeves will present her Autumn Budget before Parliament on Wednesday, November 26.