Cash deposits surge by an additional £28 billion into Cash ISAs compared to the previous year, as revealed by Rachel Reeves, prior to speculations of a potential cap reduction.
In the financial year 2023/24, a staggering £872 billion was sheltered from taxation in Individual Savings Accounts (Isas), with £360 billion of this sum being invested in cash Isas alone. This marks a significant increase from the previous year, with a flow of £28 billion more pouring into cash Isas, representing a 67% annual rise.
A total of 15 million people invested £103 billion into Isas, including cash Isas, stocks and shares Isas, Lifetime Isas, and innovative Finance Isas. The surge in investments can be attributed to the rising interest rates, which encouraged more people to funnel their money into tax-friendly cash Isas.
Savers can put up to £20,000 a year into cash Isas with all the interest earned on savings tax-free. This feature makes Isas an attractive option for many, serving as a safe and reliable home for emergency savings, home deposits, and retirement savings.
The Personal Savings Allowance, the amount of interest that can be received each year before tax is owed, has been frozen since April 2016. Despite this, the allure of tax-free savings continues to draw in investors.
Industry figures believe that using Isas and other tax-friendly investments to boost the economy could still be on the Treasury's agenda. Jason Hollands, a director of wealth manager Evelyn Partners, suggests that reform of Isas is not off the table for the remainder of this parliament.
Elsa Littlewood, private wealth partner at advisory firm BDO, shares this sentiment, believing it's not inconceivable that the cash Isa limit will return to historic levels. Jason Hollands also advises that, given the expected toughening of the tax environment, savers should make full use of Isas to protect wealth from taxation.
However, the Chancellor, Rachel Reeves, is considering reducing the cash Isa allowance to encourage cash savers to invest in the stock market. The potential reduction could boost the £6 billion the Treasury currently receives from tax on savings interest annually.
It is worth noting that no specific information about the size of contributions to Stocks and Shares ISAs in the UK for the tax year 2023/24 was found in the provided search results.
The figures were released by HM Revenue & Customs and cover the period up to April 2024, before a Labour government took power. This record-breaking investment trend in cash Isas underscores the importance of tax-efficient savings for British savers.
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