BBC expert gives alert to anyone with £25,000 in savings in account | Personal Finance | Finance

A BBC expert has given a warning to anyone with £25,000 savings – and said in some cases people would be advised not to use ISAs. Appearing on BBC Morning Live fiinance expert Iona Bain told hosts Louise Minchin and Gethin Jones how changes to the way ISAs work are coming up after being announced by Chancellor Rachel Reeves.

An estimated 22 million people in the UK has an ISA – and in it currently people can save £20,000 a year without getting taxed. Ms Bain said: “there is a big change coming. So in last autumn’s budget, the Chancellor, Rachel Reeves, announced that the Cash ISA limit will be going down from £20,000 to £12,000. Now, two important things to note about this: the first is that that change is not coming in until April 2027. So it doesn’t apply in this current tax year, and it doesn’t actually apply in the next tax year, which begins on April the 6th. So we do still have a bit of time.

“And the other important thing to note here is that this cut in the allowance is not going to apply to the over-65s. So if you’re over 65, you will still be able to make the most of that 20,000 pound allowance and be able to save all of that into a Cash ISA even from April 2027 onwards.”

She said that the Personal Savings Allowance, applies to all savings accounts that are not ISAs. She explained that people who are basic rate taxpayers – paying 20% income tax on earnings between £12,571 and £50,270, after their £12,570 Personal Allowance can earn up to £1,000 in interest without having to pay tax every year.

Higher rate taxpayers in the UK pay 40% tax on income between £50,271 and £125,140, and Ms Bain said they can earn £500 in interest before having to pay tax on it. She said that if people move their savings to an ISA they could miss out because of the potentially lower interest rates.

Ms Bain said: “What this means is if you are a basic rate taxpayer and you’re not saving a huge amount every year, then you may not be paying any tax on the interest you’re earning from your savings anyway at the moment. So you may not necessarily want to rush out and move all your savings into an ISA. And in some cases, if you do that, you might actually miss out because Cash ISA rates are not always the best interest rates on the market. You may find actually you can earn a better interest rate outside of an ISA.

“So that’s why it’s really important to work out whether you would have to pay a tax on the interest that you earn from your savings because that’s going to, you know, really determine whether it’s worth making that change.”

However people who have more savings may get a benefit to an ISA and gave an example for anyone with £25,000. She said: “Let’s say you’ve managed to build up £25,000 in your savings account over a few years. Now, if that savings account pays you an interest rate of 4%, then you’re starting to bust your Personal Savings Allowance, and from that point onward, if you continue to save into that account, you’d pay tax on your interest.

“And that’s when you’d really want that money to be in an ISA instead because that interest would then be shielded from tax. And if you’re a higher rate taxpayer, of course, that’s only £12,500 that you’d need to have in your savings account before you’re busting your Personal Savings Allowance, because that’s £500 if you’re a higher rate taxpayer.

“So that’s why you need to do the sums and work out if it’s worthwhile for you. But certainly, if you think you might be in that situation, that’s why you need to be thinking about making the most of that full Cash ISA allowance of £20,000 this tax year and in the next tax year.”

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