Key changes to savings rules are coming in soon
Key changes to savings rules are coming in soon
People building up their savings have been encouraged to check over their accounts immediately as a critical deadline approaches. A financial expert has also warned that people frequently misunderstand the rules surrounding savings accounts and may be unnecessarily paying tax.
April 5 represents the final opportunity to use your ISA allowance for the past tax year. This allows you to place up to £20,000 annually into these tax-exempt accounts. The allowance can be distributed at your discretion between stocks and shares ISAs and cash ISAs, though these regulations are set to change. From April 2027, you’ll only be permitted to allocate up to £12,000 of the allowance as you wish, while the remaining £8,000 must be directed towards investment-based accounts. Those aged 65 and above will be excluded from the new regulations and will maintain the existing allowance.
Josh Raymond, UK managing director at savings and investing platform XTB, explained: “The simple reality is that if you don’t use your ISA allowance by the end of the tax year, you lose it.
“You get a fresh £20,000 each year, but any unused allowance doesn’t roll over – which is why I always encourage people to use as much of it as they realistically can.” The specialist said even modest contributions are worthwhile.
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He said: “That doesn’t mean you need to put in the full £20,000. Even £20 inside an ISA is better than £20 held elsewhere – as anything earned within the ISA is tax free. Over time, those small decisions add up.
“For most people, it’s about building the habit of using the allowance each year, not trying to maximise it in one go.” Mr Raymond also highlighted that one of the “biggest issues in UK savings today” is that people keep their money in traditional savings accounts when they could be experiencing tax-free growth in ISAs.
Many people don’t realise
He said: “Many people leave cash in traditional savings accounts without realising that once they exceed their personal savings allowance, the interest becomes taxable. ISAs are one of the most generous and straightforward tax‐efficient products available, yet awareness remains surprisingly low.”
If you are a basic rate taxpayer, outside of ISAs which are entirely tax-exempt, you can earn up to £1,000 in interest each year tax-free. This reduces to £500 for higher rate taxpayers, while those on the higher rate get no allowance.
Mr Raymond also said: “There are just over 10 million cash ISAs and around 4 million stocks and shares ISAs in the UK, compared with an adult population of more than 50 million. That gap suggests a lot of people are missing out.”
He also drew attention to another stark reality if your savings aren’t performing as well as they could. The expert said: “There’s also a more basic issue. Inflation is still around 3 percent, so if your savings aren’t earning at least that, their real value is falling. ISAs help address both problems by offering a tax‐free environment where people can protect and grow their money more effectively.”
The impact of the Iran war
Those considering investment-based accounts to increase their funds might be worried about the ongoing conflict in Iran. The repercussions of the war have already been felt as the price of oil has soared.
Mr Raymond encouraged people to stay the course. He said: “Geopolitical events can create short‐term volatility, and it’s natural for markets to react to uncertainty. But whilst this can be unsettling, especially when values move quickly – the most important thing for long‐term investors is perspective.
“Markets have weathered wars, political crises and economic shocks many times before, and over time they have continued to grow. Trying to predict peaks and bottoms is incredibly difficult, which is why consistency matters more than timing.”
He offered some practical advice for those feeling uneasy about the conflict. Mr Raymond said: “For those feeling nervous, flexibility and diversification are key.
“Holding some assets in cash, spreading investments across sectors, or focusing on more defensive areas can all help manage risk. But in general, staying invested and sticking to a long‐term plan has historically been more effective than reacting to short‐term news.”