More than five million UK households could face unexpected tax bills on their savings as Chancellor Rachel Reeves prepares to unveil her Autumn Budget next week.
Millions at Risk of Tax Bills
New research from Paragon Bank reveals that 5.2 million UK households currently hold non-ISA savings accounts generating annual interest exceeding the £1,000 tax-free threshold for basic-rate taxpayers. The total savings across these accounts amounts to a staggering £516 billion.
Chancellor Rachel Reeves will deliver her crucial Autumn Budget on Wednesday, November 26, with speculation mounting that she may slash the annual Cash ISA allowance from its current £20,000 level to as low as £10,000.
Savers Reluctant to Switch Investments
The research highlights significant resistance among savers to moving their money into alternative investment vehicles. Approximately 58% of ISA savers stated they would be unwilling to transfer funds to stocks and shares alternatives if limits were reduced.
This reluctance increases dramatically among older generations, where 74% would refuse to switch to riskier investment options.
Andrew Wright, Head of Savings at Paragon Bank, issued a stark warning: "With interest rates having recovered from historic lows and the Autumn Budget just around the corner, millions of savers are leaving themselves exposed to unnecessary tax bills."
He emphasised that "time is running out" and that "the window to shield your savings from tax could soon narrow" significantly.
Industry Calls for Stability and Protection
Chris Irwin, Director at Yorkshire Building Society, echoed concerns about the uncertainty surrounding ISAs. "People are looking for stability and reassurance, and the continued uncertainty around ISAs isn't helping," he stated.
Mr Irwin confirmed that Yorkshire Building Society is actively campaigning to protect savings allowances, saying they're "committed to helping people continue to build financial security and navigate life's challenges."
Lifetime ISA Concerns and Potential Reforms
For those saving towards specific goals, the Lifetime ISA (LISA) remains an option, allowing savers to deposit £4,000 annually with a 25% government bonus - equivalent to £1,000 for those maximising their contributions.
However, the LISA carries significant drawbacks, including a 25% withdrawal penalty that not only removes the government bonus but also deducts part of the original savings.
Consumer champion Martin Lewis has been urging the Labour government to implement reforms to the Lifetime ISA, including raising the property threshold and modifying penalty structures.
In a social media post last week, Lewis suggested changes might be imminent: "I think we may finally see some changes to the Lifetime ISA in this week's Budget."
He highlighted the current situation where using LISA savings for properties over £450,000 triggers an "effective fine of 6.25% of your money to the state."
Lewis anticipates either the removal of penalties for purchasing more expensive properties or an inflation-adjusted increase of the property threshold to "somewhere in the £500,000s."
With the Budget announcement just days away, millions of UK savers face an anxious wait to discover whether their tax-free savings allowances will be substantially reduced, potentially exposing them to significant additional tax liabilities.
