New analysis suggests millions of Britons are at risk of a tax raid on their savings, resulting in a surge in demand for cash individual savings accounts (ISA).
Thanks to these accounts, savers are able to hold cash or investments without having to pay tax on any interest, investment income or gains they make on their money.
It has a tax yearly limit of £20,000; which can be cash alone, or the total valuation of stocks and shares or a combination of both. Around 15 million adult ISA accounts were subscribed to in 2023 to 2024, up from 12.4 million in 2022 to 2023.
Andrew Wright, head of savings at Paragon Bank, says surge in cash ISAs during 23/24 is understandable given the soaring rate environment following the mini-budget.
Around 15 million Adult ISA accounts were subscribed to in 2023 to 2024
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Mr Wright noted that this growth was "understandable", given that the "soaring rate environment" following the mini-Budget, which is driving savers to protect their interest from tax.
This trend has been observed by experts across customer bases, which economists believe is due to more individuals recognising the value of tax-efficient savings vehicles.
He said: “As we mark over two decades since ISAs were introduced, it’s encouraging to see their continued relevance and adaptability in helping people build financial resilience.”
“With an estimated 2.5 million incurring tax on their savings interest this year, demand for ISAs continues to be strong.”
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Martin Lewis, the founder of Moneysavingexpert.com, sees potential for Rachel Reeves to drop the amount that can be put into savings.
In response to the proposed change in rules, he said: “We’re being told this is not to raise tax revenue, it’s to try and encourage more young people to invest for their future.”
“Ultimately, if you’re 22 years old and going to be investing money for 20 years, the very substantial probability is that if you put it in a wide spread of global assets, putting it in the stock market will smack the pants off of putting it in savings.”
Adrian Murphy, CEO of Murphy Wealth, thinks that the cash ISA is a waste of the allowance.
Stocks and shares account for 58.6 per cent of the total market value of ISAs
| GETTYHe said, “The fact that 2.1 million of the 2.6 million new ISA subscriptions are cash only underlines the Chancellor’s case that we need to reform this tax wrapper.
“Far too much ISA wealth was already held in cash and that is only growing, despite the fact that this is not what ISAs were originally conceived for.”
In conjunction with Mr Lewis’s assessment that stocks and shares vastly supersede cash savings, Mr Murphy said that more people in the UK need to invest their money, and that anything which encourages people to do so for the long term should be welcomed.
“Stocks and shares account for 58.6 per cent of the total market value of ISAs, but only represent 19.7 per cent of accounts – that in itself says a lot about what cash subscribers are missing out on.”
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ISA reform has previously been cited
| GETTY“That's why more people in the UK need to invest their money and anything that encourages people to do so for the long term should be welcomed.”
"Many people see investing as risky, but they don’t understand that inflation – which is still well beyond the Bank of England’s target – means cash loses value over time.”
Despite this choice, financial experts encourage people of all ages, but especially young people, to continue to save for their future.
This comes as an impressive 66.3 per cent of under 25s are active savers according to HMRC data.
This compares to just 40.5 per cent of 65 and overs saving, despite their higher overall market share valuation, as young people save smaller amounts of money.