Pensioners will pay tax on cash interest held in investment accounts despite an exemption from Rachel Reeves’s “punishing” Isa raid.
Starting next April, savers will pay a 22pc tax charge on the interest earned on cash held in stocks and shares Isas, the Treasury announced on Tuesday.
The rules are being introduced to police the Chancellor’s cut in the annual cash Isa allowance from £20,000 to £12,000.
A last-minute exemption for over-65s was announced at the last Budget in November, meaning that pensioners will retain their full £20,000 cash Isa allowance.
However, those older investors will not be exempted from the 22pc charge on interest on cash held in stocks and shares accounts, and will also have to abide by rules on “cash-like” investments.
‘Problematic for older investors’
Experts warned that this could negatively affect older investors who cannot afford to take as much risk as younger ones, who have more time to ride out any downturns.
Jason Hollands, of investment coaching company Bestinvest, said: “The restrictions will be particularly problematic for older investors who are seeking to de-risk gradually rather than making wholesale portfolio changes.”
Helen Morrissey, of stockbroker Hargreaves Lansdown, said: “The levying of a 22pc charge on interest on cash held in stocks and shares Isas may give some older investors pause for thought about their ability to de-risk their portfolio in times of stock market turbulence.”
She added that concerned investors would still be able to invest most of their portfolios in to low-risk money market funds under the new rules, and could transfer into cash Isas.
The £20,000 cash Isa allowance will be reinstated for 64-year-olds at the beginning of the tax year in which they turn 65, the Government confirmed.
At this point, investors will be allowed to transfer money from investment accounts into cash Isas once more – something that will be banned for younger savers.
