Reeves’ ‘nasty tax surprise’ for ISA owners outlined by expert | Personal Finance | Finance
A change to how people save into their Individual Savings Account from Chancellor Rachel Reeves could cause problems for account holders. Reeves’ proposed 22% charge on interest for money saved in ISAs has been ridiculed by an expert. Charlene Young, speaking to The Daily Express, outlined how the change would be both unpopular and also undermine the point of the account.
Young, the senior pensions and savings expert at AJ Bell warned: “Labelling a 22% tax as a charge is not going to pass the ‘smell test’ with investors and rides roughshod over the tax-free wrapper status of ISAs. ISAs are well-loved throughout the UK because they’re relatively easy to understand. But rather than build upon this, the government appears intent on introducing extra complexity and red tape into the system.”
Reeves’ proposed change would see trouble for future savers too as Young warns the tax would affect those who are saving toward a particular goal. Young added: “It will be especially damaging for new or prospective investors who are looking to dip their toes into markets. It’s hard to think of a worst first impression than a tax charge on what is supposed to be a tax-free wrapper.
“Rather than empower a new generation of retail investors – the government’s supposed ambition – it risks giving them an ‘investment ick’ at the first hurdle. But it also impacts investors who’ve built up an ISA portfolio and are looking to de-risk into cash as they prepare to use it towards a particular goal.
“Take the example of a family member looking to help a child with university costs that can easily top £60,000. If they are moving ISA holdings to cash on the approach to the child turning 18, they could face a nasty tax surprise on any interest received.”
The move could see the most useful part of an ISA undermined by the policy change. Young added: “Payments into ISAs must be made in cash before the money can be invested.
“It’s a sensible move for ISA investors to bank their ISA allowance in cash and then pause if they’re considering their investment options, while others might hold an element of cash as part of a portfolio strategy or to pay fees and charges.”
Reformations to the ISA accounts came in under Reeves, with savers under the age of 65 seeing their tax-fre cash allowance for Cash ISAs will be cut from £20,000 to £12,000. The overall annual ISA allowance remains at £20,000. This means the remaining £8,000 must be put into a Stocks and Shares ISA.
