Labour tax horror: Rachel Reeves 'could seek' shock 'cap' on ISA savings in October Budget
ISA allowances could be reformed in Reeves' Autumn Budget
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Analysts are sounding the alarm over a potential pending tax raid from Labour on Britons' savings ahead of the Autumn Budget next month.
Sir Keir Starmer has warned of a "painful" Budget on October 30 with Chancellor Rachel Reeves reiterating "tough decisions" are to be made to plug the £22billion "black hole" in the public finances.
The Prime Minister has asserted that "those with the broadest shoulders should bear the heavier burden" with investors preparing for tax hikes and the axing of tax relief.
Accountants from BDO are warning ISAs could be in line for the reform after recent figures found the tax-free savings product was costing the Treasury £5billion annually in relief.
Elsa Littlewood, a tax partner at the firm, explained: "Cutting this cost by reining in ISA benefits for wealthy investors might be seen as an easy way to help balance the books."
"It’s not impossible that the Chancellor could seek to impose a lifetime cap on ISA saving – perhaps set at around £500,000. If this were to happen, we would hope that the limit would be indexed to rise in line with inflation.
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Keir Starmer has warned the upcoming Autumn Budget will be 'painful'
GB NEWS"We could also see a reduction in the annual allowance available for cash ISAs, but an increase in the annual allowance for stocks and shares ISAs in an effort to support economic growth."
Savers are able to deposit up to £20,000 in an ISA or separate this allowance across multiple accounts with the tax running from April 6 to April 5 the following year.
There are multiple types of ISAs including Cash, Stocks and Shares and Lifetime but savers can only place £4,000 a year into the latter account.
The previous Conservative Government's decision to freeze tax thresholds, which has pulled Britons into higher brackets, has resulted in more people turning to ISAs to protect their hard-earned cash.
Based on the latest HM Revenue and Customs (HMRC0 data, the number of cash ISAs that people paid into during 2022/23 rose by 11 per cent compared to the previous year.
Some 7.9 million Cash ISAs were adopted over the period, compared to 7.1 million accounts during the 2021/22 tax year.
In comparison, the number of Stocks & Shares ISAs subscribed to slipped slightly from 3.9 million to 3.8 million between the years.
Despite the Bank of England slashing the base rate from a 16-year high to five per cent over the summer, the central bank avoided another cut earlier this week in a win for savers.
Savings accounts and ISAs from high street banks and building societies continue to be attached to competitive interest rates.
However, analysts are pricing in another base rate reduction from the Bank by the end of the year which could result in lesser returns from ISAs down the line.
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ISAs are useful for savings tools for those who want toa void paying tax
GETTYCompounded with a potential tax raid on ISAs, savers are likely to have less competitive options available to them this time next year.
Ed Monk, an associate director at Fidelity International, explained: "It may have made sense to up your cash savings while returns have been strong, but now is a good time to reassess your balance of cash and investments.
"HMRC’s data highlights the significant bias that UK savers show towards cash rather than investments, with 7.9 million savers holding a cash ISA compared to just 3.8 million having a Stocks and Shares ISA.
"With inflation proving stubborn but rates on cash now falling, cash savers face lower real returns on their money in the coming years."
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