Households across the UK are being urged to stick money into an ISA before Wednesday over fears Labour could reduce allowances in its upcoming Budget.
An ISA is a type of savings account which allows people to shield their money from tax.
Right now, savers can earn £1,000 in interest before they have to pay tax at 20 percent on every £1 above £1,000, which is known as the Personal Savings Allowance.
That is unless you’re earning over £50,270, at which point your Personal Savings Allowance is slashed to just £500 interest and you pay 40 percent on every £1 above £500 of interest in a year.
That’s where ISAs come in. These Independent Savings Accounts allow you to put money away tax-free, even if you earn more interest than your Personal Allowance, because any interest they generate is tax-free too.
Right now, ISAs have a maximum limit of £20,000 per year. This can be in one ISA or split between several but it cannot exceed £20,000 in total.
However, financial experts are concerned that Labour could be set to change ISA rules in its Budget on Wednesday.
Hargreaves Lansdown 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.”
Such a lifetime cap could severely limit your ability to take advantage of an ISA’s tax allowances, as you suddenly only have five years of maximising the limit available to you, whereas before you could max it every year for the rest of your life.
