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Britons have piled a record amount into cash Individual Savings Accounts (ISAs) to protect their finances against post-election against changes to tax and savings rules.
The amount poured into cash the tax-free ISAs soared £1 billion year-on-year to hit £4.2bn – the biggest influx ever recorded in May.
The move comes against predictions that an incoming Labour government might cut the amount people can invest in ISAs in order to gain tax-free growth.
Currently, savers can pay £20,000 per year into an ISA and there is no limit on how much they can stash away over their lifetime. As a result, there is a growing number of so-called ISA millionaires.
However, the Resolution Foundation, a think tank which is close to Labour, has previously urged the Government to cap the amount that can be saved into an ISA at £100,000.
The Foundation argued the current rules are unfair because they mainly benefits the wealthy who have high levels of disposable income.
The total amount of money invested in cash ISAs between January 2023 and May 2024, was a staggering £73.5 billion.
This represents a sharp contrast with the period January 2021 to May 2022 when £8.8billion of money was withdrawn – meaning more savers were taking cash out that adding it in.
Returns on cash ISAs do not trigger a tax bill, but tax can be owed on interest earned from ordinary savings accounts if it exceeded the personal savings allowance.
The allowance is £1,000 for basic-rate taxpayers and £500 for those in the higher-rate band. Additional-rate taxpayers get no allowance.
The Conservative government has frozen the thresholds at which tax applies. This has dragged millions into higher tax brackets, slashing their personal saving allowance dramatically.
As a result, people are expected to pay a record-breaking £10.3bn in tax on their savings in 2024-25, according to HM Revenue and Customs – up about £1bn since last year.
Sarah Coles, of investment service Hargreaves Lansdown, told the Telegraph: “The general election has meant a great deal of talk about taxes, and whether or not they will rise after the election.
“So far, no party has mentioned the personal savings allowance, and it would be a particularly tricky change to make because it’s so popular and so commonly used.”
However, she said savers won’t want to take any chances, and may well be putting money into tax free cash ISAs to protect their money.
