Investment platform Hargreaves Lansdown has issued an ISA warning over Income Tax Personal Allowance thresholds following the new government taking charge.
The financial services company is urging investors to take a look at ISAs, telling customers they should be ‘on your radar’ following Labour’s win in the General Election.
The reason is partly down to frozen tax thresholds. Tax thresholds for income have been set at the same levels for several years, and are due to remain at the same level under the new government until at least 2028.
Because of something called ‘fiscal drag’, where more and more people are pulled into paying more tax as a result of wages going up but the thresholds staying the same, people with savings are being told to consider using an ISA to avoid paying tax on savings interest at rates based on your income.
Hargreaves Lansdown said: “Following Labour’s win in last week’s General Election, ISAs should be on your radar.
“Frozen tax thresholds already mean you could be set to pay more tax. That means now is as good a time as any to make the most of your £20,000 ISA allowance.
“Changes to capital gains tax have also been rumoured. While the government hasn’t suggested rises are likely, they’re yet to rule any changes out.
“Both Cash ISAs and Stocks and Shares ISAs can help save UK tax. Mix and match to make the most of both.”
Express audience editor Alex Evans added: “If you’re a basic rate taxpayer with income of between £12,570 and £50,270, you can earn £1,000 in savings interest before you have to pay tax on it.
“In a typical 5 percent savings account, that’s £20,000 in savings for one year before you hit that limit and owe tax to HMRC, which is automatically reported by your bank.
“For a higher earner, taking home more than £50,270, the limit is just £500, meaning you can only keep £10,000 in a 5 percent savings account before you owe tax.
“This is where ISAs come in, as you can shield the money from the taxman legally by stashing anything over that amount into an ISA. The tax only comes due when you sell investments or withdraw money from the ISA down the line, and you can choose the moment you do that to avoid hitting savings interest thresholds for tax.”
