With the end of the tax year fast approaching, there is still time for individuals to take full advantage of their £20,000 ISA allowance.
Chancellor Rachel Reeves is also understood to be considering reducing the Cash ISA tax-free allowance by 80% from £20,000 to just £4,000 annually and whilst it’s not confirmed when such a change would be introduced, there is speculation it could be as early as 6 April 2025.
There have also already been many reductions in tax allowances and increases in tax rates over recent times. So maximising ISA contributions before the end of this tax year is now more important than ever.
Jonathan Watts-Lay, Director, WEALTH at work, comments;
“With the end of the tax year fast approaching and rumours that the Cash ISA allowance may be drastically cut, it’s more important than ever that people review their finances now. It’s crucial to keep in mind that any unused allowance can’t be carried over into the new tax year. So, for those who have savings or investments held outside an ISA or a pension, it is a case of ‘use it or lose it’.”
Watts-Lay explains; “Many other savings allowances have shrunk in recent times. This includes the Tax-Free Dividend Allowance which has fallen from £5,000 in 2017/18 to just £500 today, while the Capital Gains Tax (CGT) exemption, which was £12,300 in 2022/23, has dropped to £3,000. From October 2024, CGT rates rose to 18% for basic rate taxpayers and 24% for those paying tax above the basic rate.”
Watts-Lay explains; “Not only this but rising interest rates have also led more savers to exceed their Personal Savings Allowance (£1,000 for basic rate taxpayers and £500 for higher rate taxpayers), resulting in unexpected tax liabilities. In contrast, the ISA allowance currently still remains at £20,000 which allows individuals to shield their savings and investments from taxes on interest, dividends, and capital gains; although we don’t know how this will change in the future.”
He comments; “Many employers want to support their employees to build financial resilience for the future and therefore offer financial education to help with understanding of savings methods, as well as access to savings vehicles like Workplace ISAs that provide a tax efficient way to invest. Whilst we don’t know what potential changes to tax allowances and rates may lay ahead, providing financial wellbeing support in the workplace to help employees improve their financial future can only be a good thing.”
“It’s always worth speaking to your employer to see how they can help you.”