Rachel Reeves has officially announced significant modifications to cash ISAs after much anticipation. However, other Budget declarations could also impact savers.
Starting April 2027, the tax rate on savings interest will rise. Basic-rate taxpayers can earn up to £1,000 in savings interest annually before incurring tax, known as the personal savings allowance.
The current tax rate of 20% on savings interest exceeding this threshold will increase to 22%. Tax is applicable on savings interest above this limit.
For instance, depositing funds in the leading easy-access savings account with an interest rate of approximately 4.5% would require saving over £22,000 for a year to risk surpassing the savings allowance.
Higher-rate taxpayers, subject to a 40% tax rate on savings interest exceeding £500 annually, will see this rate climb to 42% from April 2027. Additional rate taxpayers, currently at 45%, will face a 47% tax rate on all savings interest.
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Savings interest in an ISA is tax-free. Currently, individuals can save up to £20,000 annually across all ISA accounts.
Certain ISAs, such as the Lifetime ISA, have lower contribution limits, like the £4,000 annual maximum. As of April 2027, savers under 65 will only be allowed to deposit £12,000 yearly into a cash ISA.
Despite the new cap, the overall ISA limit remains at £20,000. For instance, one