Tax relief that has been ‘haven’ for retirees ‘under threat’ from Rachel Reeves

Rachel Reeves
-Credit:GETTY


Rachel Reeves is reportedly under pressure to remove the tax-free benefit from Cash ISAs. GB News reported that the accounts are “under threat” following the Chancellor’s meeting with City firms, who reportedly claimed the £300billion sum that savers have sitting in Cash ISAs could be performing better if they were invested through the likes of stocks and shares ISAs instead.

The Telegraph reported she was “open” to the suggestion, but experts have slammed the proposal, with many pointing out that the tax-free cash savings options have been a “safe haven” for pensioners who have managed to collect some hefty savings. Cash ISAs allow savers to earn interest completely tax-free.

As a result, it’s particularly attractive to people who are earning in the higher tax brackets and have lower personal allowances for interest on savings. Or for those who have substantial savings that would earn interest well above their personal allowance in other savings accounts.

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Jordan Clark, the financial planner at Quilter noted the average cash ISA holding for people over the age of 65 was £63,365. This is nearly seven times the cash ISA savings people in the 25 to 34 age group have, an average of £9,477.

The expert also pointed out that the vast majority of older cash ISAs owners don’t have other ISAs. He added: “Removing cash Isa tax breaks would come as a much greater shock to pensioners.”

Additionally, Anne Fairweather, of Hargreaves Lansdown noted that the “big barrier to investment” isn’t the tax-free framework of cash ISA accounts but rather because savers lack confidence needed to invest. She added: “People like to pot their money. If we just had one Isa, we would need to give investment warnings to people who only held cash.”

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The news comes ahead of the new tax year in April, while savers are generally urged to make the most of this year’s allowances which could mean getting as close to their £20,000 limit as possible or their annual allowance for pension saving before this deadline. However, this could be particularly important now as one expert warned savers not to take these reliefs and allowances for granted.

Emma Sterland, Chief Financial Planning Director at leading UK wealth manager Evelyn Partners, told Reach: “Taking advantage of pension tax relief is now perhaps more important than ever…Who knows what could happen to the generous system of pension tax relief, or to the recently-expanded £60,000 annual allowance, in the next few years?

“The annual allowance for pension contributions is not ‘use-it-or-lose-it’ in quite the same way as the ISA allowance, as the option to use up previous years’ unused allowances does exist under ‘carry forward’ rules. But there’s no guarantee that these rules, or pension tax relief in its current form, or the higher annual allowance, will be around forever.”