Coventry Building Society has warned Chancellor Rachel Reeves that “resurrecting” the rumoured tax raid on individual savings accounts (ISAs) in the upcoming Autumn Budget would “steer things in the wrong direction” for British savers.
Earlier this year, reports circulated that the Treasury was floating reducing the £20,000 tax-free allowance attached to the savings products in what many consider to be a stealth tax.
Bank of England data shows that British savers put £2.3billionn into Cash ISAs during August, marking the smallest monthly contribution in 24 months.
The figure represents a notable decline from earlier in the year, particularly following April’s exceptional £14billionn influx.
The Chancellor is being told to avoid reforms to ISAs by Coventry Building Society
|
PA / COVENTRY BUILDING SOCIETY
Despite representing more than 42 per cent of total deposits in August, the reduced Cash ISA contributions suggest shifting saver preferences.
Many opted for easy-access accounts over the summer period, even though returns from these products face taxation.
The August slowdown follows a period of remarkable growth in tax-free savings, with ISAs maintaining their significance for British households managing their finances.
Since the Chancellor assumed office in July 2024, British savers have deposited more than £59billion into cash ISAs, according to calculations based on Bank of England statistics.
This substantial sum has enabled savers to potentially sidestep income tax obligations exceeding £300million, underscoring the value of tax-exempt savings vehicles for UK families.
Analysts note the figures demonstrate continued enthusiasm for ISAs despite August’s comparative weakness.
Jeremy Cox, the head of Strategy at Coventry Building Society, noted: “Since the Chancellor took office last July, over £59billion has been saved into cash ISAs proving they remain a popular route to earn tax-free returns.”
Industry experts are voicing apprehension about possible modifications to ISA regulations ahead of the November 26 Autumn Budget.
Mr Cox cautioned that “with a Chancellor in urgent need of more tax revenue, there are a few warning signs for savers that the road ahead is not clear”.
He expressed particular concern about potential reductions to the £20,000 annual ISA limit, stating: “Resurrecting the idea of a cut to the cash ISA limit would steer things in the wrong direction for savers, and our members have consistently told us that reducing the tax-free savings limit would be deeply unpopular.”
Furthermore, Mr Cox advised: “Anyone who hasn’t yet made full use of their £20,000 ISA allowance should consider doing so while the current allowances are still in place.”
The growing tax burden on savings has become increasingly significant, with approximately seven million individuals expected to enter the higher-rate tax bracket this year.
LATEST DEVELOPMENTS:
According to the building society, this represents one in five UK taxpayers, according to industry estimates.
Analysts blame this on the impact of fiscal drag, which occurs when tax allowances are frozen during a period of time when inflation or wages are rising.
This results in Britons being pulled into higher tax brackets and paying more to HM Revenue and Customs (HMRC).
Mr Cox highlighted this trend, observing: “ISAs remain one of the most effective ways to shield interest from tax.”