The new tax rates will rise to 24% for basic-rate, 44% for higher-rate, and 49% for additional-rate taxpayers starting on 6 April. To counter these hikes, savers can place up to £20,000 per year into cash Isas, where returns remain fully shielded after a planned allowance cut was abandoned. Individuals can also leverage the standard personal allowance, the personal savings allowance, or the starting rate for savings. However, with top accounts offering returns over 5%, unshielded savers can quickly breach these statutory thresholds.
Key points
Maximizing the £20,000 annual cash Isa allowance is essential because interest generated…: Maximizing the £20,000 annual cash Isa allowance is essential because interest generated inside the account remains completely tax-free.
Basic-rate savers keep a £1,000 personal savings allowance and higher-rate payers keep £5…: Basic-rate savers keep a £1,000 personal savings allowance and higher-rate payers keep £500, but additional-rate taxpayers receive no tax-free allowance.
Strong interest rates above 5% mean standard cash deposits can quickly exhaust statutory…: Strong interest rates above 5% mean standard cash deposits can quickly exhaust statutory tax-free allowances on modest balances.
Sources checked by our analysis pipeline: 1
Savers were both winners and losers in Wednesday’s budget. In his first outing as chancellor, John Healey dropped a plan to cut the cash Isa limit for under-65s but surprised everyone with an extra tax charge on savings and property income. His predecessor, Rachel Reeves, had already announced a plan to increase the income tax rates for savers and landlords that was due to take effect in April 2027. But Healey went further, adding an additional two percentage points to each of the rates.
Jason Hollands, managing director at wealth manager Evelyn Partners, describes the higher rates as a “sting in the tail” for savers.
However, he says: “There are practical steps savers can consider to mitigate this interest tax crunch, although the right approach will depend on their circumstances.”
The new taxes
The levels of tax, which will apply to savers across the UK, will be 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for those on the additional rate. They come into effect on 6 April.
This means it will get harder to find savings accounts…
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