From cuts in the capital gains and dividend tax allowances to higher capital gains tax (CGT) rates on stocks and shares, investors have had their fair share of tax blows in 2024.
However, as the tax hikes get more aggressive, ISAs are working even harder. The amount saved in tax is forecast to have shot up by more than a fifth in just one year.
In fact, new figures show the ISA has proven a trusty shield from it all – and is set to save us £9.4bn in income tax, dividend tax and capital gains tax this tax year.
This article isn’t personal advice. If you’re not sure an action is right for you, ask for advice. Remember, ISA and tax rules can change, and any benefits depend on your individual circumstances. Unlike cash, all investments and any income from them can also rise and fall in value, so you could get back less than you invest.
Why is tax rising for savers and investors?
The previous government slashed the capital gains tax and dividend tax annual allowances, so investors with money outside tax wrappers are being pushed over these limits and paying more tax.
More recently, in Labour’s Autumn Budget, the government raised the capital gains tax rate on stocks and shares.
This will have boosted tax bills this year, but will do so even more in the next tax year when the rules apply for the full 12 months.
Tax bills depend on returns too though. So the fact stock markets have had a strong year, and interest rates on savings have remained relatively high, means tax bills on savings and investments outside tax wrappers are stacking up.
What can investors do to pay less tax?
When you invest through a Stocks and Shares ISA, you won’t have to pay dividend or capital gains tax.
So, whether you want an income from your investments, to sell and take any gains, or to rebalance your portfolio, you won’t have to pay UK tax.
Over the long term the benefits become even more obvious as your investments would’ve had years to grow, without having to worry about your tax bill racking up.
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What can savers do to pay less tax?
The easing of the cost-of-living crisis means we’ve had a bumper year for squirrelling away savings, and despite falling in recent months, rates are still far higher than they have been for years.
A combination of the two will have naturally increased the amount of interest people are making, so savers are taking more advantage of their personal savings allowance.
Using the personal savings allowance (where the first £1,000 of interest is tax-free for basic-rate taxpayers, and the first £500 is tax-free for higher-rate taxpayers) is usually savers first port of call. It’s currently on track to save us £570mn this tax year.
However, savers can’t afford to only rely on this allowance – especially as frozen income tax rates are expected to have pushed more people into higher tax bands, where their personal savings allowance has halved or disappeared overnight.
With these thresholds frozen until 2028, tax on savings is likely to remain a worry for millions of people.
This means it’s worth considering a Cash ISA, where tax on your interest will be sheltered from income tax no matter what tax tweaks or interest rates we see in the future.
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.
Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).