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Depositors are funnelling cash into tax-free individual savings accounts ahead of next week’s budget in a bid to shield the money from Chancellor Rachel Reeves, according to financial advisers.
Taxpayers each get a £20,000 a year allowance to save into the accounts, known as ISAs, which can hold cash, shares and bonds.
Interest and capital gains are shielded from tax, making them attractive ways to save, but speculation is mounting that Ms Reeves is looking for ways to cut tax perks in order to raise more money for the Treasury and fund her spending plans.
According to investment firm Bestinvest, more than three times as many customers have filled the accounts in the first two weeks of October compared to prior years.
Jason Hollands of Evelyn Partners, which owns Bestinvest, said: “Because of all the general concern about rising taxes people are moving earlier than usual” to put money into savings.
It comes as retirees rush to withdraw cash from their pensions ahead of feared cuts to tax-free benefits in the Budget
Retirees with private pensions can typically take 25 per cent of their pension as a lump sum, up to a limit of £268,275, allowing them to avoid paying income tax, but Ms Reeves is reportedly considering a cut to the amount savers can withdraw without triggering a payment to HM Revenue & Customs.
Ms Reeves faces tough choices over how to close a “black hole” of £22bn to balance the government’s books. Critics have suggested that tweaks to the Treasury’s rules on capital spending could ease much of the pain, but Ms Reeves has set herself strict rules, including a pledge to cut debt as a share of the economy.
The chancellor told ministers in a cabinet meeting last week that plans to fill the gap in the UK’s finances will be enough only to “keep public services standing still”.
A shake-up of the UK’s generous pension tax allowances has been feared for several years as chancellors search for ways to raise money without further indebting the country or raising income tax.
There is also concern she may tinker with other allowances, with the £20,000 a year savers can hide in ISAs being seen as a possible target.
For savers, the good news is that, rather than with a pension, there is limited risk in putting cash into most ISAs since the money can always be withdrawn, unlike a pension which tends to be locked until its owner reaches at least 55.
Stocks and shares ISAs, which can hold shares in companies and bonds, tend to be riskier and are more long-term in their nature.