Rachel Reeves’s tax grab has been laid bare by an expert, who has revealed how many more people can expect to fork out more for the Treasury as a result of the Budget. Up to two million could end up paying more tax on their savings, they suggest, thanks to a levy on interest once they exceed the personal savings allowance, and if they continue to earn interest on savings outside an ISA. Continuing to save ￡20,000 annually will cost ￡264 in tax for basic-rate and ￡1,216 for higher-rate taxpayers over five years after the allowance is lowered from ￡20,000 to ￡12,000, from April 2027. Individuals aged 65 or above are exempt.
Andrew Prosser, Head of Investments at InvestEngine, said: “Our analysis shows that almost 1.5million basic-rate taxpayers and just under half a million (462,000) higher-rate taxpayers deposited more than ￡12,000 into their Cash ISA in the last financial year. Now that the allowance has been cut down to ￡12,000, they will need to find somewhere else for this cash for anything over that amount.
If they were to put that ￡8,000 – the difference between ￡20,000 and the new ￡12,000 limit – into a 4.5% savings account, after five years, a basic-rate taxpayer will have lost around ￡264 in tax, while a higher-rate taxpayer could lose around ￡1,216, or ￡234 a year once their total savings interest exceeds the ￡500 allowance.”
InvestEngine research has resulted in the following figures:
Basic rate taxpayer (20%)
| Year | Total held outside ISA | Annual interest (4.5%) | Taxable interest (beyond 拢1,000) | Tax due (20%) | Cumulative tax paid | | 1 | 拢8,000 | 拢360 | 拢0 | 拢0 | 拢0 | | 2 | 拢16,000 | 拢720 | 拢0 | 拢0 | 拢0 | | 3 | 拢24,000 | 拢1,080 | 拢80 | 拢16 | 拢16 | | 4 | 拢32,000 | 拢1,440 | 拢440 | 拢88 | 拢104 | | 5 | 拢40,000 | 拢1,800 | 拢800 | 拢160 | 拢264 |
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