Key changes to savings rules are coming in soon
Treasury minister Rachel Blake shared an update about ISAs(Image: UK Parliament)
The Government has published an update regarding a new ISA product. The statement from the Treasury comes as significant changes to ISA regulations are taking effect shortly.
Currently, savers can deposit up to £20,000 per tax year into ISAs, split however they wish across different ISA types, though this is set to change soon. Liberal Democrat MP Sarah Dyke questioned Chancellor Rachel Reeves on whether she had considered introducing “charity ISAs” to help deliver “long-term funding for the charity sector”.
The ISA options currently available to savers include cash ISAs, stocks and shares ISAs, innovative finance ISAs and Lifetime ISAs. A junior ISA can also be opened for children under 18, with deposits of up to £9,000 permitted each tax year.
‘Tax advantaged’ accounts
Treasury minister Rachel Blake responded to the query. She said: “The Government already offers a range of tax advantaged savings accounts (ISAs) that are well placed to support individuals to donate the capital and/or the growth to a charity of their choice.
“In addition, Gift Aid enables charities to claim a basic rate top-up on eligible donations and incentivises taxpayers to donate more to charity. Gift Aid and Higher Rate Relief on Gift Aided donations provide over £2.5billion of tax relief.”
One of the primary advantages of ISAs is that any interest earned or investment growth within these accounts is completely tax-free. For savings accounts held outside of ISAs, you can earn up to a certain amount of interest each tax year and then you pay tax on any additional gains.
Basic rate taxpayers can pocket up to £1,000 in interest each financial year without incurring tax. For higher rate taxpayers, this falls to £500, while those on the additional rate receive no allowance whatsoever.
Regarding potential changes in this area, Ms Blake said: “The Government keeps all taxes and reliefs under review, and we remain committed to ensuring charities get the most out of the existing system, and to improving that system where we can.”
Key changes to savings rules
Several significant changes to ISA regulations and other aspects of savings taxation are on the horizon. From April 2027, the £20,000 ISA allowance is being reduced, meaning you can only allocate up to £12,000 as you choose, while the remaining £8,000 will be restricted solely to deposits into stocks and shares accounts.
The tax rate applied to interest earnings is also set to rise, increasing by two percentage points across all tax bands. This means basic rate taxpayers will see their rate climb from 20 per cent to 22 per cent.
Higher rate taxpayers will face an increase from 40 per cent to 42 per cent, while those on the additional rate will see their rate rise from 45 per cent to 47 per cent.
