Savers are at risk of being slapped with a stealth tax under Labour’s Autumn Budget tomorrow (October 30), new research has found.
Chancellor Rachel Reeves is expected to extend the current freeze on income tax thresholds until 2030 as part of her fiscal statement.
If implemented, this policy decision is projected to pull more Britons into the higher rate of income tax which is charged at 40 per cent.
Coventry Building Society is sounding the alarm that this would the personal savings allowance for 2.7 million workers slashed to just £500.
The building society’s analysis of Office for Budget Responsibility (OBR) figures found British savers would be hit with a collective tax bill of more than £12billion in 2029.
According to the lender, regular earnings growth would drag seven million workers into higher tax band.
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It is estimated 2.7 million workers would see their personal savings allowance half from £1,000 to just £500 as a result.
Since 2021, income tax bands and allowances have been frozen with the previous Chancellor Jeremy Hunt planning to keep rates at their current level until 2028.
An extension of the freeze is reportedly being floated as Reeves looks for ways to fill the £40billion in the public finances.
This is referred to as fiscal drag, when allowances are frozen over a period when either inflation or incomes are rising, causing taxpayers to pay more to HM Revenue and Customs (HMRC).
Tom Selby, the director of public policy AJ Bell, is reminding those with savings for retirement to use their ISA allowance.
For the 2024/2025 tax year, the allowance is sitting at £20,000 which can be split across multiple ISA variants.
Over the first two weeks of October, the number of savers maxing out their annual tax-free allowance jumped by over 300 per cent, Bestinvest reports.
In recent years, ISAs have increasingly become a popular option for savers looking to protect their money from a potential capital gains tax (CGT raid).
Chancellor Rachel Reeves will unveil Labour’s Budget on October 30
PA
Selby said: “This is an inevitable consequence of the deep freeze on income tax thresholds and something all savers need to be aware of.
“If you have significant cash savings and are likely to pay tax on your interest earnings as a result, it’s worth considering putting some or all of these in a tax product like an ISA, where they can grow completely tax-free.”
Ahead of the Budget, accountancy group BDO warned that a limit on ISA saving may be rolled out by the Chancellor.
The firm stated: “It’s not impossible that the Chancellor could seek to impose a lifetime cap on ISA saving – perhaps set at around £500,000.”