Why using an Isa now is vital after the Budget tax attack – and the best ones to open today

In the first Labor budget in 14 years, Chancellor Rachel Reeves unveiled £40 billion in tax rises to fill a claimed £22 billion ‘black hole’ in the country’s finances.

Savers waited with bated breath to hear whether Isas would be among the victims of the Chancellor’s tax raid.

It was rumored that the £20,000 annual allowance for tax-free savings could be reduced A Lifetime limit on Isa contributions of £500,000 imposed.

Fortunately, that hasn’t happened – which is good news, as yesterday’s announcements mean using a cash or shares Isa will become more important than ever as a way to protect your money.

Here’s what savers need to know – and some of the best Isas they can open today.

What is the Isa allowance?

Savers can put £20,000 per tax year into a cash or shares Isa, and the interest or gains are protected from tax.

Although the Chancellor did not make any major budget changes to Isas, she did freeze the Isa allowance at its current level of £20,000 for a further six years, until April 2030.

Until then, the limit for Lifetime Isas will remain at £4,000, and Junior Isas at £9,000.

Savers have called for an increase in the £20,000 annual benefit, which will be frozen for 13 years in 2030.

Over the years, the real value of that amount will have been dragged down by inflation.

If the £20,000 tax-free allowance had risen every year in line with the consumer price inflation measure since 2017, it would now be around £26,000.

How Isas can help savers

With so many taxes set to rise following yesterday’s Budget, it is vital that savers protect their money from the tax authorities wherever possible.

Opening Money Isa does just that, and it should be an important tool in everyone’s financial arsenal.

If you save money outside an Isa and receive interest on it, you will be taxed at 40 per cent on anything above the personal savings allowance. This is £1,000 per tax year for basic rate taxpayers and £500 for higher rate taxpayers.

Now that savings interest rates are much higher than in recent years due to inflation effects, it is easier to exceed these limits.

Jeremy Cox, Head of Strategy at Coventry Building Society, explains: ‘Unlike previous years of ultra-low interest rates, many taxpayers with modest savings today may not even realize that they could be taxed on the interest they earn.

‘Unless they have protected their savings from tax using an Isa, a higher rate taxpayer with a savings account paying 5 per cent would only need to have a balance of £10,000 to see their savings rate reach £500, giving them all their consumes personal savings. .

“They would have to pay the tax authorities 40 percent of any further interest they receive.”

Interest rates on Isa accounts are currently as high as 5.1 per cent.

How Isas can help investors

The Chancellor announced major changes to capital gains tax in the Budget, meaning basic rate taxpayers will have to pay a charge of up to 18 per cent on money made from the sale of shares, property or valuable assets.

CGT is levied on the profits you make when you sell investments, second properties, business properties and personal belongings worth more than £6,000, with profits above the annual tax-free amount of £3,000 all falling within the tax net.

But crucially for investors, they can contribute up to £20,000 a year to a shares Isa, and their gains will be protected from any tax.

You can divide your Isa allowance between four different types of Isas: cash, shares, innovative finance or life.

Jason Hollands, managing director of Evelyn Partners, explains: ‘In a world of higher taxes, including increased capital gains tax which has risen significantly from 10 per cent to 18 per cent for basic rate taxpayers, Isas are more important than ever as a flexible, tax-efficient way to to save and invest.

‘Alongside pensions, they should be a core pillar of most people’s long-term savings plans. Use them while you can.”

Laith Khalaf, head of investment analysis at AJ Bell, said: ‘Investments within Isas are not subject to capital gains tax, nor are the dividends they yield subject to income tax.

‘An increase in capital gains tax, especially when combined with an annual CGT allowance of just £3,000, means investors must prioritize pensions and Isas if they hope to see growth in their investments.’

Those who hold investments outside an Isa or Sipp can perform a maneuver called ‘Bed and Isa’ or ‘Bed and Sipp’ to move them within a tax shelter.

This does involve the sale of assets, so capital gains tax may be due at this time, although investors can avoid this by using their annual allowance of £3,000 CGT.

Below you will find the best investment platforms, where you can open stocks and shares Isa.

SAVE MONEY, EARN MONEY

3.75% AER var.

3.75% AER var.

Chase checking account required*

4.91% fix for 6 months

4.91% fix for 6 months

Prompt interest rate increase on GB Bank

Free stock offer

Free stock offer

No account fees and free stock trading

4.84% cash Jes

4.84% cash Jes

Flexible Isa now accepting transfers

Refund of transaction costs

Refund of transaction costs

Get £200 back in trading fees

Affiliate links: If you purchase a product, This is Money may earn a commission. These deals have been chosen by our editors because we believe they are worth highlighting. This does not affect our editorial independence. * Chase: 3.69% gross. The Ts and Cs apply. 18+, UK residents