State pensioners with £10,000 in savings are being urged to make the most of their allowances ahead of the Budget. Today, October 30, Labour will unveil its first Autumn statement after securing victory in the General Election.
Chancellor Rachel Reeves is expected to roll out a range of financial schemes, plans, hikes, and changes aimed at ‘restoring economic stability’ in the UK. This follows claims that the Tories left a £22 billion ‘unfunded pressures’ gap, which the new Government has now inherited.
Now, financial experts predict that one such change could be linked to ISAs. An ISA is a type of savings account that allows people to shield their money from tax.
It can be a conventional savings account that pays interest, either fixed or variable, or it could be a stocks and shares ISA where individuals can invest and have those investments protected from tax. At present, if you deposit your State Pension income into a general savings account, and that account then earns interest, you could be taxed on the interest earned.
So, if you put just £10,000 into a two-year fix at 5%, you would also generate enough interest in that time to owe tax because it would be paid in a lump sum at the end. However, if you put the money into an ISA, the interest is safeguarded from tax, reports The Express.
The annual ISA limit is £20,000, which can be spread across various ISAs but must not exceed the total cap. Yet, there’s growing concern among financial experts that Labour might propose changes to ISA rules in the upcoming Budget.
Hargreaves Lansdown’s Head of Personal Finance Sarah Coles said: “It’s worth noting that last year the Resolution Foundation, a research organisation that seeks to improve living standards for those on low and middle incomes, called for a lifetime cap on ISA savings of £100,000.
“Whatever happens in the Budget, now could be a good time to secure this year’s ISA allowance. Anything you’ve already paid in, or you pay in today, will be sheltered from UK income and capital gains tax.”
Meanwhile, Lewis Broadie, Savings Expert at NatWest, cautions against rash financial moves but advises keeping an eye on any ISA (Individual Savings Account) updates that may emerge from the Budget discussions. “Recent research, conducted by NatWest, found that almost seven in ten (69%) savers expect to earn interest on their savings this year and could be eligible to pay tax on the interest they earn,” he said.
“With this in mind, it is definitely worth keeping an eye on any changes to the landscape and making sure you’re informed on the latest rules around contributing to your ISA.” The annual statement, outlining the Government’s future spending plans, will take place at 12.30pm Wednesday, October 30.