Rachel Reeves unveiled a raft of tax hikes this week (Image: Getty)
Rachel Reeves’s tax grab has been laid bare by an expert, who has revealed how many more people can expect to fork out more for the Treasury as a result of the Budget. Up to two million could end up paying more tax on their savings, they suggest, thanks to a levy on interest once they exceed the personal savings allowance, and if they continue to earn interest on savings outside an ISA. Continuing to save £20,000 annually will cost £264 in tax for basic-rate and £1,216 for higher-rate taxpayers over five years after the allowance is lowered from £20,000 to £12,000, from April 2027. Individuals aged 65 or above are exempt.
Andrew Prosser, Head of Investments at InvestEngine, said: “Our analysis shows that almost 1.5million basic-rate taxpayers and just under half a million (462,000) higher-rate taxpayers deposited more than £12,000 into their Cash ISA in the last financial year. Now that the allowance has been cut down to £12,000, they will need to find somewhere else for this cash for anything over that amount.
ISA holders will be forced to move their money or pay up (Image: Getty)
If they were to put that £8,000 – the difference between £20,000 and the new £12,000 limit – into a 4.5% savings account, after five years, a basic-rate taxpayer will have lost around £264 in tax, while a higher-rate taxpayer could lose around £1,216, or £234 a year once their total savings interest exceeds the £500 allowance.”
InvestEngine research has resulted in the following figures:
Basic rate taxpayer (20%)
| Year | Total held outside ISA | Annual interest (4.5%) | Taxable interest (beyond £1,000) | Tax due (20%) | Cumulative tax paid |
| 1 | £8,000 | £360 | £0 | £0 | £0 |
| 2 | £16,000 | £720 | £0 | £0 | £0 |
| 3 | £24,000 | £1,080 | £80 | £16 | £16 |
| 4 | £32,000 | £1,440 | £440 | £88 | £104 |
| 5 | £40,000 | £1,800 | £800 | £160 | £264 |
Rachel Reeves is facing a backlash to her Budget (Image: Getty)
Higher rate taxpayer (40%)
| Year | Total held outside ISA | Annual interest (4.5%) | Taxable interest (beyond £500) | Tax due (40%) | Cumulative tax paid |
| 1 | £8,000 | £360 | £0 | £0 | £0 |
| 2 | £16,000 | £720 | £220 | £88 | £88 |
| 3 | £24,000 | £1,080 | £580 | £232 | £320 |
| 4 | £32,000 | £1,440 | £940 | £376 | £696 |
| 5 | £40,000 | £1,800 | £1,300 | £520 | £1,216 |
Investing the £8,000 instead: stocks and shares ISA
| Taxpayer | Total invested over 5 years | ISA value after 5 years (5% growth) | Tax paid | Equivalent value outside ISA (after tax) | Tax saving / advantage |
| Basic rate (20%) | £40,000 | £51,051 | £0 | £48,850 | £2,201 better off |
| Higher rate (40%) | £40,000 | £51,051 | £0 | £47,250 | £3,801 better off |
