HMRC tax changes spark rush into cash ISAs

HMRC tax changes spark rush into Cash ISAs as savers urged to make most of £20,000 allowanceBritons are pouring billions into Cash ISAs to make the most of current tax-free savings rules before major HMRC changes come into force next year.

The latest figures from the Bank of England show savers deposited £3.1 billion into Cash ISAs during May, following a £12 billion surge in April, suggesting many are acting early ahead of changes due from April 2027.

Under the planned reforms, the annual Cash ISA allowance for adults aged between 18 and 64 is due to fall from £20,000 to £12,000. Alongside this, further tax changes affecting savings held outside tax-efficient accounts are also expected to take effect.

The figures also show that savers are increasingly locking their money into fixed-rate accounts. Deposits into fixed-rate savings products increased by £1.3 billion during May, while £2 billion was withdrawn from easy-access accounts as people sought higher returns.

Andy Wood, tax expert at Tax Barrister UK, said the latest figures suggest many savers are choosing to act before the new rules take effect.

He said: “Whenever people know tax rules are going to become less favourable, it’s common to see a rush to take advantage of the existing allowances while they still can.

“For anyone who has the means to do so, the current £20,000 Cash ISA allowance represents an opportunity that may not be available again once the changes come into force next April.”

The reforms mean savers should begin reviewing how their money is structured rather than waiting until the final weeks before the deadline

Wood added: “Many people leave tax planning until the end of the tax year, but this is one of those occasions where planning ahead could make a real difference.

“If you have significant cash savings, it’s worth reviewing whether you’re making full use of available tax-efficient allowances and whether your savings are still held in the most appropriate accounts for your circumstances.”

The Bank of England’s latest Money and Credit data also showed total deposits at banks and building societies increased by £5.4 billion during May.

Meanwhile, the average interest rate on newly opened fixed-rate accounts rose to 4.26%, up from 4.07% the previous month, while easy-access accounts remained considerably lower at around 1.65%.

With less than a year until the planned HMRC reforms take effect, experts say many savers are likely to continue making full use of this year’s £20,000 allowance before it is reduced.